My latest post for Alpha Baskets looks at what to do with energy exposure in a diversified portfolio. Quite a while ago I reduced exposure in the sector thanks to a big MLP M&A event and top down headwinds for emerging markets. Any reduction was good but of course any remaining exposure has of course been a drag but at some point oil prices will come back and when that happens it could be very fast and owning stocks that survive will likely be the fastest way to make up the drag.
From the post;
Oil is down 70%-ish from its high a couple of years ago and down much more from when it hit $150 in 2008. The energy sector’s weighting in the S&P 500 has about cut in half to 6.3%, that kind of change in sector weighting doesn’t happen very often. Oil itself cannot go to zero and it is now down dramatically. Something that cannot go to zero and has fallen 70% is closer to the bottom. If lower for longer turns out to be correct then there will be companies that fail or otherwise go out of business shrinking the field, this is the definition of the cure for lower prices is lower prices argument.
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Had to make a quick run over to Sedona the other day;
And the second picture is a collage of older Type 6 engines (brush trucks) from Kalispell, Evergreen, MT, Rapid City and my department; Walker Fire.