For those who follow our blog, it would make sense if every now and then we revisited some of the topics we have talked about before. We were also reminded recently that sometimes we need to simplify our communication and “DUMB it DOWN”! SO, what is happening in the energy space? Nothing different and just more of the same. The price of a barrel of oil has gone from US $46 to $43 in the past week, after rallying from $39 to almost $50 the prior month. Those investors that were late to this party are likely experiencing some buyer’s remorse. Ala DUMB 101. However, we also suggested to look out longer than 5 trading days. Our team is decidedly neutral on energy, yet historically we like to buy good assets when they have been cut by a material amount. In the case of oil, the current price represents a discount of more than 50% from the highs hit in July 2014. Trust us, this is an unpopular stance. So for some, they likely think: plug your nose, close your eyes and invest your money for longer than a week.
Have you ever had that Ahh moment? No really, I am talking that Oprah Ahhhh moment! Well billionaire investor Oprah Winfrey did recently, and no one blinked, not even the regulators. Consider that someone of her stature, telegraphs that she has just bought a bunch of a beaten down stock like Weight Watchers. The share price of Weight Watches (WTW) hit all-time highs north of $85 in May 2011. Since that point, the share price shed more than its clients. Sorry had to say it… J Shares hit lows below $4 in July 2015. A loss of more than 95% (humans can’t lose 95% of their weight without severe health repercussions). In Oprah’s case, as the stock price seemed to hit the point of no return, she was at the buffet, figuratively. Once the news was released that Oprah had accumulated more than a 10% stake in the company. The share price of WTW rebounded to the $18 levels recently (closing price $18.25 Oct 20, 2015), a 168% move from the close 2 days earlier, before her announcement. Consider the math for a second, she now owns 6.3 million shares. Let’s assume she paid $6 per share or total outlay of $36 million. When the news is announced of her ownership and support, the stock jumps and as mentioned now trades at $16 levels. Short term return? Simple math suggests a $60m profit, if she took that trade.
Source: VIP Wealth Solutions and Bloomberg
From a Dumb 101, perspective few of us have this type of moral market suasion that can cause triple digit percent types of returns in mere days. But in looking through this it dovetails with the idea of buying things when they are super ugly, like Oprah……. did with Weight Watchers. Her return was a lot faster than what we will see with oil, but there will be a time when oil is higher than current levels and some investors will be saying should have, could have, would have.
So in the heat of the moment, there is only one thing left to say, Kudos or Ahhhh to Oprah.
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