Jimmy Carter also was president during major deregulations. Trucking, airlines, and maybe natural gas (?). I was and am no fan, but good things did happen on his watch.
100%. At the end of the day, CAPEX rose sharply leading to oversupply and much lower prices in the 1980s. Alaska North Slope as an example. And while he is still widely mocked for the cardigan sweater, he was right the efficiency gains are part of using less energy to generate GDP.
Well done, Arjun. Really enjoyed your explanation of your long-term position & the conviction needed to stay the course in the face of large short-term drawdowns so that you are there for the long-term rewards.
Art, thank you so much for the comment...it is very much appreciated. Clearly, if one is going to look through drawdowns, you need to have conviction in the long-term. I would think the dividend yields make that a more manageable proposition but obviously not risk free.
About a year ago, I read a few Twitter posts by an old guy who claimed to still have hard copies of old stock chart books (of pre internet era). Unfortunately, this was more than 10 months before I established a Twitter account. I forgot his twitter name and did not bookmark the link. Anyway, he made three observations based on his old chart book on the performance of the energy sector for the decade from 1970 to 1980.: 1) the index of big oil companies (IOCs) was the worse performer, with only ~150% return; 2) the US domestic producers did much better, with ~ 700% return; 3) the equipment and service index had the best return, up ~2000% (yes 20 times!). He even posted an image of the equipment and service chart which have I saved on my PC. I was intrigued about it and tried to verify it myself. I even went to my local libraries to look for old stock chart books. Unfortunately, I do not have any lucks.
The under performance of IOC in 1970s is understandable . A lot of their foreign assets were nationalized by some OPEC countries. The US dollar also weakened against many foreign currencies due to Nixon's action of not honoring Brentton Woods agreement, which pushed up the production cost of IOC's remaining foreign assets relative to the domestic assets.
The out performance of OFS in 1970s is somewhat surprising. The OFS got hit much harder than E&P in last 8-10 years. The recovery of OFS so far has lagged behind of that of E&P. So, it seems that the sector has some setups for the out performance in the current cycle. It may actually happen if the policy of green energy transition and decarbonization becomes more practical.
Thanks for your comment Weston. My personal view is that we won't see a 50% drawdown in energy equities. The thing that jumps out to me is that energy equities are up massively vs the broader market being down. If the broader market collapses (not my call...but a possible scenario), the point is that I think it will be tough for energy still be in positive territory. Of course no cycle is identical and ESG and "don't invest in CAPEX" this time around was not seen previously. I do happen to agree with your broader conclusion that "one might expect oil and gas stocks will do better than they did in the 1970s..."
If equities are viewed as 15-20 year duration instruments, the sharp sell-off in the 1970s was in part due to higher interest rates. If we find ourselves in an environment of yield curve control, with long-term treasuries anchored at 3% but inflation and oil prices higher, one might expect that oil and gas stocks will do better than they did in the 1970s from a drawdown point of view.
Jimmy Carter also was president during major deregulations. Trucking, airlines, and maybe natural gas (?). I was and am no fan, but good things did happen on his watch.
100%. At the end of the day, CAPEX rose sharply leading to oversupply and much lower prices in the 1980s. Alaska North Slope as an example. And while he is still widely mocked for the cardigan sweater, he was right the efficiency gains are part of using less energy to generate GDP.
Fantastic Work. Best article ive read on sub stack
very kind of you to say, thank you!
Just wanted to thank you for this article, very informative and practically useful.
Thank you Robert, very much appreciated.
Well done, Arjun. Really enjoyed your explanation of your long-term position & the conviction needed to stay the course in the face of large short-term drawdowns so that you are there for the long-term rewards.
Art, thank you so much for the comment...it is very much appreciated. Clearly, if one is going to look through drawdowns, you need to have conviction in the long-term. I would think the dividend yields make that a more manageable proposition but obviously not risk free.
Great article
thank you!
Hi Arjun,
Thanks for another wonderful column.
About a year ago, I read a few Twitter posts by an old guy who claimed to still have hard copies of old stock chart books (of pre internet era). Unfortunately, this was more than 10 months before I established a Twitter account. I forgot his twitter name and did not bookmark the link. Anyway, he made three observations based on his old chart book on the performance of the energy sector for the decade from 1970 to 1980.: 1) the index of big oil companies (IOCs) was the worse performer, with only ~150% return; 2) the US domestic producers did much better, with ~ 700% return; 3) the equipment and service index had the best return, up ~2000% (yes 20 times!). He even posted an image of the equipment and service chart which have I saved on my PC. I was intrigued about it and tried to verify it myself. I even went to my local libraries to look for old stock chart books. Unfortunately, I do not have any lucks.
The under performance of IOC in 1970s is understandable . A lot of their foreign assets were nationalized by some OPEC countries. The US dollar also weakened against many foreign currencies due to Nixon's action of not honoring Brentton Woods agreement, which pushed up the production cost of IOC's remaining foreign assets relative to the domestic assets.
The out performance of OFS in 1970s is somewhat surprising. The OFS got hit much harder than E&P in last 8-10 years. The recovery of OFS so far has lagged behind of that of E&P. So, it seems that the sector has some setups for the out performance in the current cycle. It may actually happen if the policy of green energy transition and decarbonization becomes more practical.
Thanks Tonyforever. Good points on reminder about nationalizations negatively impacting IOCs.
Thanks for your comment Weston. My personal view is that we won't see a 50% drawdown in energy equities. The thing that jumps out to me is that energy equities are up massively vs the broader market being down. If the broader market collapses (not my call...but a possible scenario), the point is that I think it will be tough for energy still be in positive territory. Of course no cycle is identical and ESG and "don't invest in CAPEX" this time around was not seen previously. I do happen to agree with your broader conclusion that "one might expect oil and gas stocks will do better than they did in the 1970s..."
If equities are viewed as 15-20 year duration instruments, the sharp sell-off in the 1970s was in part due to higher interest rates. If we find ourselves in an environment of yield curve control, with long-term treasuries anchored at 3% but inflation and oil prices higher, one might expect that oil and gas stocks will do better than they did in the 1970s from a drawdown point of view.