As you all know, in the beginning of the pandemic, we saw something we thought we would never see ever: negative oil price. The demand for air travel disappeared overnight. Nobody was driving. It was a dismal time for any oil-related stocks.
When I saw this, this immediately made me think about what happened to the financial market-related stocks during the 2008 meltdown. Anything and everything related to financial market was making lows every day and I have decided to invest in $FAS instead of $XLF.
What was I able to achieve? Rather than getting 8x return since 2008 with $XLF, I was able to get 40x return with $FAS.
What about oil stocks or funds this time around? Rather than $XLE, I am making a big bet on $ERX and $GUSH. Why in energy? When we printed a boat load of money last time in 2008, most commodity prices went up because most of them (if not all) are traded in USD and since our money was worth less due to over printing, commodity prices went up. Here are some examples.
- Commodity price went up for 3 years after hitting the bottom.
- Oil prices went up for 6 years after hitting the bottom.
- Copper price went up to pre-financial crisis within 3 years.
As you can see from the chart above that we just began our price boom. One might suggest, “there are so many EV’s in the market. The oil price will never go to where it used to be.” EV only account for 2% of sales and when you account for all cars on the road, it’s not even 1%. And it’s used in so many areas that EV alone won’t impact the demand in the near future.
Conclusion: I believe the demand for oil will go back to where it was. So I have invested in $ERX (around $7 so I got about 4x return so far) and $GUSH (around $17 so I got 5.5x). Tom Lee also has been quite bullish on oil-related stocks lately (since May this year). But rather than picking individual stocks or $XLE, I might as well go with 2X or 3X funds given my strong conviction that it will go back up. Then again, do your own DD before you make any investment decisions.