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My 15-Part Strategy to Make You Money

by | published March 25th, 2010

Several of us from the Money Map crew were out in San Diego this past week for The Oxford Club Investment U Conference.

Quite an experience…

I had the opportunity to meet Oil & Energy Investor and Money Morning subscribers in person, along with hundreds of other private investors, and spend time talking about opportunities in the energy sector.

Following my address Wednesday to the entire assembly (“Navigating the New Energy Markets”), I had hours of fascinating conversations with people from all over the country. In response to questions and suggestions from a number of you, I decided to devote my workshop on Thursday to the strategy I will be unfolding here in Oil & Energy Investor.

To put matters simply, this strategy will allow you to profit from a very volatile energy market – and to do so while the market is moving. Those in San Diego just managed to get it a few days early…

Writing these columns over the past several months has been a lot of fun, but each one had particular objectives drawn from an overall approach to trading in this new energy environment. It has taken me three decades to develop, refine, and test that strategy.

So let me step back and explain why I am doing this, outline the strategy, and then show you the best way to use it.

First, the Why

Many of you have asked why I decided to start this energy advisory. Aside from the misgivings I share with a number of you about Wall Street gurus setting up another bubble…

… you turn out to be the remedy itself.

With oil both a commodity and a financial asset, its price and direction are determined largely by the objectives of those bringing in the liquidity. It may be oil now, but this is quickly becoming the situation with every other energy source, too.

This was the fundamental reason I introduced a new trading approach a few weeks ago during meetings at Windsor Castle. I addressed it here last week (“How the Little Guy Will Fix Oil Futures and Get in on the Profits”) but now want to state the reason more directly.

The liquidity upon which oil trading is currently based reflects the interest of speculators in making money from the spread on a futures contract. They have no interest in either the actual oil or longer-term effects on trading.

You, on the other hand, do.

Average investors have a more balanced long-term view. As I explained here on Monday (“In Oil Refining, It’s All About Margins”), many average investors taken together can actually provide the liquidity necessary to stabilize the market.

For these reasons, I decided to offer Oil & Energy Investor to the small guys who quite literally have the ability to prevent the next asset meltdown.

Of course, you will also be making some serious money along the way, and that’s fine too.

Now for the Strategy

It is composed of five entry points, five essential ingredients, and five elements you need to know. Taken together, these 15 considerations comprise a strategic investing approach I have developed over decades.

Entry Points

The five entry points are where I will bring you into the market: (1) companies in the upstream (production), midstream (distribution), and downstream (wholesale and retail); (2) technology developers and providers; (3) ancillary and support entities; (4) energy trading and hedging; and (5) product spreads.

The first three involve standard investment plays – buying or selling stocks and bonds, using puts and calls when appropriate, to maximize gains and minimize losses. Here we will be appraising companies, their performance, and their potential. In other words, this is traditional investment 101 as it applies to all kinds of energy and all participants in the sector.

The last two are newer opportunities. Here the average investor can participate in the profits from playing paper assets (futures contracts) against “wet” assets (the actual underlying oil, gas, or energy consignments), as well as the market value of one valued-added product (say gasoline) against others (for example, diesel, jet fuel, heating oil, or petrochemical feeder stock).

We will follow investment targets in one or more segments: providing energy; improving efficiency or delivery; making available the necessary field, power plant, or market services; and trading the resulting energy itself.

Essential Ingredients

To succeed, an investor must have access to where the money is being made. That is not simply the market in general, but a trading position having particular characteristics. This is the next part of the strategy.

Think of them as the building blocks of a successful investment approach. You need (6) access to trading liquidity sufficient to temper volatility; (7) exposure to the right trades and executions; (8) the flexibility to move into and out of the action; (9) ease of application – knowing about a correct move is useless if it requires two pages of equations to get to it; and (10) timing.

This last consideration is without doubt the most important single element in any trading strategy. Good timing makes money. Bad timing loses money – period.

(By the way, this is Moors Rule #4 for those of you who have been following as I slowly lay out all 42 of those rules.)

The Elements You Need to Know

The final category of the strategy considers the five main aspects of the market in which we will be trading. These components are not static; they change.

Therefore, you need to understand (11) the environment, that is, the factors both inside and outside the market impacting the attractiveness, or even the desirability, of what may otherwise appear to be a promising trade. Seeing (12) the sequence of events – both those improving the investment and those cautioning against it – allows the investor to participate in direction or flow. Confusing a cause with a result has brought down many an investment model.

Understanding these first two elements allows you to do the next two, the most important. Just as computer trading programs analyze factors before acting, so must you. However, your approach is actually more direct. You need to be able to (13) identify triggering events, those that produce an expected result; and (14) determine when to move in and when to leave.

Finally, all of this needs to be (15) in plain language.

There it is in a nutshell: the 15 elements of my trading strategy.

The Best Way to Use It

In the months that follow, I will be introducing hundreds of energy moves to make you money. As the market changes, as its volatility increases, this strategy will allow us to move with it. And this leads to the third matter I want to address today – how we use the strategy.

Actually, this is the easy part.

You don’t need to worry about crunching the numbers (I have grad students on fellowship who crunch whatever I give them) or revising the math formulas and permutations (got that covered too). You won’t be talking to decision makers worldwide (that’s my job, though I will continue to bring you along) or identifying sequences, triggering events, applications or any of the other elements in the strategy.

You will receive all of that right here.

Kent

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  1. Robert null Shefflette
    October 2nd, 2010 at 10:54 | #1

    How do your recommendations and actual equity movement relate. I understand you have the inside tract and also that price movement and institutional involvement may be different. please explain.
    Thanks Bob Shefflette

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