Investing in energy ventures has traditionally been associated as having greater potential returns, with corresponding risks, than any other type of investment. The high-risk/high-potential of certain categories of these ventures (commonly referred to as "wildcats") drove investment for many years. There are many such opportunities available today. However, the Fund's oil and gas investment strategy is to focus on projects where risk dollars are substantially moderated and returns of 20% to 40% are the expected norm.
Risk and at-risk dollars are moderated by investing in projects fitting three categories. In order of decreasing risk, these are:
1. Possible Reserves: Known, productive zones within a field where additional reserves may be separated from proved reserves by faulting. These types of projects are of significant interest among independent energy companies and investors because geological data from existing wells is available to aid in developing the geological hypothesis. Both risk and at-risk dollars are moderated because the existing geological evidence dramatically increases the probability of success.
2. Probable Reserves: These type of projects involve re-entering abandoned oil and natural gas wells to test potentially productive natural gas zones bypassed when natural gas prices were under $0.75 per thousand cubic feet (MCF). Natural gas is now over $5.00 per MCF and is expected to increase in value as the push for cleaner burning, non-imported fuels grows stronger. Risk is moderated because geological data from the original well is available to develop the geological hypothesis, thus increasing the likelihood for a successful new well.
3. Proven Reserves: The most actively pursued subcategory today. After a discovery well locates hydrocarbons in commercial quantities, a multi-well drilling program to exploit newly discovered reserves commences. The exciting part of these projects is that in many cases, the major oil companies have already discovered the field, yet it fails to meet their minimum size criteria (For example: Large oil companies usually will not even consider developing a field unless it is at least a 50 to 500 well project. A 3 to 4 well project is not worth their time. Yet, to a smaller independent and their private individual investors, a 3 to 4 well project can be quite lucrative. Smaller independents, if they have the capital, can pick up the "nuggets" that the major oil companies leave behind.
In order of decreasing risk, both risk and at-risk dollars are moderated by investing in:
1. A known productive zone in a field where reserves may be separated from proved reserves via faulting.
2. Re-entering abandoned oil & gas wells to test for productive natural gas zones.
3. A multi-well drilling program to exploit proven reserves.
Article was written by Mouser57
Ideally, investors try to buy a stock when the price has reached a support level (a level at which the price is as low as it will go) and sell the stock when it hits a resistance level (a level at which the price is as high as it will go). This is easier said than done. Most investors end up missing out on a continual rise by waiting for a stock to plummet first, or sell way to early by underestimating how high the price will go. In this article, we will focus on the two most popular strategies that you can use to invest without having to worry about market timing.
Dollar cost averaging (DCA) is an investing technique intended to reduce exposure to risk associated with making a single large purchase. According to this technique, shares of stock are purchased in a specific amount on a specified periodic basis (often monthly), regardless of current performance. The theory is that this will lead to greater returns overall, since smaller numbers of shares will be bought when the cost is high, while larger number of shares will be bought while the cost is low.
An example of DCA would be as follows: If I want to buy 1,200 shares of IBM stock using DCA, then I might decide to purchase 400 shares of IBM per month over the course of the next three months. Hypothetically, during month one, the price of IBM may be $105 per share, and then it might drop to $95 per share during month two, and then rise to $100 during month three. If I bought all 1,200 shares during month one, I would have cost me $105 per share. But, by spreading the purchase over a three month period, I managed to buy IBM at an average price of $100 per share.
The primary drawback of using DCA is that you may not be maximizing your overall return. If there is an indication that a certain stock is currently undervalued and might shoot up in price, you would actually make less money using DCA than if you had bought all the shares in the beginning before the price skyrocketed. So, it is not always a winning strategy to spread your purchases over a period of time.
Value averaging, also known as dollar value averaging (DVA), is a technique of adding to an investment portfolio to provide greater return than similar methods such as dollar cost averaging and random investment. With the method, investors contribute to their portfolios in such a way that the portfolio balance increases by a set amount, regardless of market fluctuations. As a result, in periods of market declines, the investor contributes more money, while in periods of market climbs, the investor contributes less.
Here is an example of DVA: I want to invest in Yahoo using DVA. For the sake of argument, we will say that Yahoo is currently $10 per share. I determine that the value of the amount I am going to invest over the course of 1 year will rise, on average, $1,000 each quarter as I make additional investments. If I use DVA, I invest $1,000 to start. If, at the end of the first quarter, the share price has risen to $15 per share, that means that the value of my investment is now $1,500, which means I will only have to invest $500 at the start of the second quarter in order to bring the total amount of my investment for the first and second quarter to $2,000. So, I am investing less as the stock price increases.
Dollar value averaging usually works better than cost averaging because value averaging results in less money being invested as the stock price goes up, whereas with cost averaging you continue to invest the same number of dollars regardless of the share price. But, neither of these strategies are necessarily full-proof. Make sure you know something about the company you are going to invest in before you go forward.
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