I have always been a firm believer in the old investor advice, “Buy on bad news; sell on good news.” If you are looking for an industry that has had more than its fair share of bad news, you don’t need to look further than the oil sector. The energy sector has been beaten up really badly, thanks to the decline in petroleum prices. It doesn’t appear like the price of global oil will go back to previous levels anytime soon.
This means that there is going to be a lot of shake outs and consolidation in the industry. A lot of the weaker players are going to simply go out of business or simply get bought out for cents on the dollar. The more bad news you hear about this sector, the more energy stocks will either remain stagnant or get pushed down even further. This is precisely why it is a good idea to get in to oil stocks.
Of course, you shouldn’t pick any energy stock you come across. You have to focus on “best of breed”. You have to focus on the strongest players with the least debt and the biggest market share. With that said, don’t expect a quick turnaround. Don’t expect a quick return on your investment. There are bound to be situations where you simply buy a stock and then, eventually, it recovers in a fairly short period of time. Most of the time, it will take a lot more time for your energy sector investments to pan out.
The secret to investing in the energy sector now is timing. You have to time when you get in. As much as possible, try to get in at the bottom. Since no investor knows the bottom price of a stock, this means that you have to be very willing and able to do dollar-cost averaging. This way, you can ride down the price of a stock. Next, you have to have a long time horizon. We are talking of at least one year before you expect some sort of return on your investment.
