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Rick D

Rick D
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  • Shell No! I Won't Go Back To Rule-Changing Oil Giant [View article]
    Christine, I don't know when the price of oil is going to come back up either, but I'm willing to bet it'll be before I ever need to sell any of my oil stocks, and in the meantime I'll collect some pretty nice dividends.

    As for day jobs, I quit mine 8 years ago. :-)
    Jun 18, 2015. 10:09 PM | 2 Likes Like |Link to Comment
  • How To Best Diversify From The S&P 500 Index [View article]
    Interesting article and conclusions. Jeremy, thank you for writing this.

    It looks like the returns given are for cost-free indexes and cost-free hedging. Obviously in the real world there are costs. How much does the cost of hedging act as a drag on long-term returns? Hedging reduces risk, but is it worth its real-world cost for a long-term investor?

    Any thoughts?
    Jun 17, 2015. 07:32 PM | 2 Likes Like |Link to Comment
  • Shell No! I Won't Go Back To Rule-Changing Oil Giant [View article]

    Thank you for the kind words.

    I guess I wasn't entirely clear in my earlier comment. My concentrated portfolio and two-sector strategy is intentional. This way I can have truly in-depth knowledge of everything I own. (I tried a three-sector strategy for awhile but I just couldn't keep up with everything.)

    I chose energy and IT for two reasons: valuation and non-correlation. While I believe the market as a whole is somewhat overvalued, I believe the energy sector is undervalued and the IT sector is fairly valued overall. I am not having difficulty finding good values in these sectors. In the energy sector there are so many good values right now that I feel like a kid in a candy store! (I'd include RDS as one of those good values.) As for non-correlation, energy and IT usually don't move together, which means they probably won't both be down at the same time that I need money for a major expenditure that I can't cover with dividends. Witness the fact that IT is way up over the past year or two while energy has gone down.

    I've actually never worked in the oil industry, but I try to have a level of in-depth knowledge comparable to someone who has. As you stated, there is a lot of technology in the oil and gas industry, as well as in many other industries these days.

    I tend to share your opinion of BP. It's the only global supermajor I have no position at all in. There are good reasons for that.
    Jun 17, 2015. 01:18 PM | 2 Likes Like |Link to Comment
  • Shell No! I Won't Go Back To Rule-Changing Oil Giant [View article]

    I don't follow absolutely every stock in the energy sector, only the larger players, so I won't necessarily discover the best valued energy sector stock. And of course opinions and personal life circumstances differ. The best value for a younger investor with a speculative bent might be a small highly-leveraged wildcat firm. As a retiree I can't go taking those kinds of risks.

    For me as a retiree with a long-term (10 year) time horizon and a desire to collect decent dividends along the way, I believe the best value in the energy sector is Statoil. They made some massive finds a couple of years ago which will do nothing for the company until they are developed, which will probably take around 10 years. But once those projects come on line I think Statoil's share price will skyrocket. In the meantime I get a decent dividend. And the company is well capitalized and has low debt, so they can weather the storms along the way. Statoil is my largest holding in the energy sector and I will likely add to my stake in the coming months.

    My second largest holding in energy is Teekay LNG Partners. It has stable long-term LNG shipping charters and is ridiculously cheap. I also hope to add to my stake in the coming months.

    I have stakes in other individual energy issues but they are relatively small. I do have a substantial stake in the Vanguard Energy Index Fund which covers the entire US-based energy industry. That way I get sector exposure, including the smaller, more speculative players, without the risk of an investment wipeout.

    My largest overall portfolio holding is Apple. I bought it a few years ago when sentiment was incredibly negative. I saw that they had tripled R&D expenses and I was willing to bet that all those engineers they hired weren't sitting around doing nothing. As a long-term investor I love when a company dramatically increases R&D. It craters the share price short term because it decreases profitability in the short term, and Wall Street is too myopic to think about what it does in the long term. I just buy and sit patiently for a few years. I'm still sitting patiently.
    Jun 12, 2015. 05:21 PM | 2 Likes Like |Link to Comment
  • Shell No! I Won't Go Back To Rule-Changing Oil Giant [View article]

    Thanks for posting Morningstar's analysis here.

    I would take issue with quite a bit that they say in the passage you quoted.

    The view that long-term oil prices will be well below $100 because of the emergence of U.S. tight oil is ridiculous. Oil is (mostly) priced on a world market. U.S. tight oil is a tiny part of world oil production. On top of that, under current law U.S. oil cannot be exported. Lastly, U.S. tight oil is not anywhere near the cheapest oil to produce. Oil prices are temporarily low right now because the Saudis want them that way. They've done this before and it has never lasted more than about 2 years.

    I wonder if Morningstar's analyst even realizes that there are plenty of good resources outside the U.S.

    Morningstar's analyst also claims that Shell's downstream operations are underexposed to the U.S. Gulf Coast. I guess he failed to notice the huge Motiva refinery in Port Arthur, Texas.

    He makes no mention at all of Pearl GTL, a huge contributor to Shell's profitability. Pearl turns ridiculously cheap Qatar gas into diesel and jet fuel. Pearl could probably make good money even if oil was $10 a barrel.

    And, true to the form of most analysts, he says nothing (at least not in the passage you quoted) about Shell's future plans. Nothing about Prelude, nothing about the Arctic, nothing about any of Shell's other major projects and their potential to boost Shell's income in the long term.

    The quoted passage is a beautiful example of why I don't pay much attention to analysts!
    Jun 12, 2015. 04:51 PM | 4 Likes Like |Link to Comment
  • Shell No! I Won't Go Back To Rule-Changing Oil Giant [View article]

    As you have firsthand knowledge of Shell's Utica play, you probably know more about it than I do. FWIW, I will give you my general impressions.

    Shell had a lot of smaller gas plays in North America but made a strategic decision to focus on fewer plays so they sold off much of their other acreage to focus on the Marcellus and Utica. I get the impression this was done more for operational efficiency than because Shell believed the Marcellus and Utica were "better". I suspect the trades won't really affect Shell's bottom line much. As you note, Shell doesn't consider these "major programs". Still, I am glad that the new wells are looking to be successful. When Shell purchased assets from Chesapeake a few years ago, those assets turned out to be duds. I'm glad this purchase is turning out better.

    I am aware of the pipeline takeaway issues in this area and as you mention the situation does appear to be getting better over time. This combined with LNG exports (not just from Cove Point but elsewhere in the eastern half of North America) should improve price realizations. These are all positives. The question is, will they be enough to move the needle on a company the size of Shell? I suspect they won't move it very much.

    You mentioned greater use of gas for electricity generation. This is a significant factor not just here but worldwide. I think a bigger issue for the northeastern U.S. is the lack of delivery infrastructure in New England. I think it's ridiculous that Boston still imports LNG from Nigeria at high prices when we have gobs of cheap gas just a few hundred miles away that we have a hard time getting rid of and that we're looking to export! Getting pipeline infrastructure into New England would be a huge win-win, but unfortunately there are political factors and bad rules for cost recovery by electricity generators that at least for now are preventing this.
    Jun 12, 2015. 01:43 PM | 3 Likes Like |Link to Comment
  • Shell No! I Won't Go Back To Rule-Changing Oil Giant [View article]

    I have the benefit of having a relatively concentrated portfolio. I own only a few stocks, and most of my holdings are in only two sectors: technology and energy. Because of this I have the time to gain quite a bit of in-depth knowledge on the companies and sectors I own. Investors such as yourself with highly diversified portfolios are necessarily limited in the amount of knowledge they have on each of the stocks and sectors they have holdings in. There simply aren't enough hours in a day to keep up with them all. Consequently these investors are dependent on analysts to a degree I am not personally comfortable with.

    Call me cynical, but I take a somewhat dim view of analysts. Often they have conflicts of interest, and they almost universally take a short-term view. On top of that, most are primarily interested in keeping their jobs, which results in a tendency for them to go along with the conventional wisdom and current mood. If you go along with the trend and are wrong, hey, everybody else was wrong, too! But if you buck the trend and are wrong, the unemployment line awaits.

    Over the years I've seen analysts be wrong many, many times. Even when they are right, their sentiments are usually priced in to the stock. Consequently I generally ignore them and do my own analysis. I have had significant success doing this, as I often find bargains among investments with unjustifiably negative sentiment. I believe the energy sector has many such bargains at this time, and I'd include Shell as one of those bargains. (Now if you want to discuss if Shell is the BEST bargain in the energy sector or not, that would make for a very interesting discussion.)

    It might seem strange, but I actually sleep better at night with a concentrated portfolio than I would a diversified one. I KNOW what's going on with my investments!

    I understand and respect the motivation for having a diversified portfolio. No single investment can sink you. But there's a downside to it too, as I've pointed out here. As with most things in life, there are tradeoffs, and what's best for one person isn't necessarily best for another. I think you've made a reasonable choice for yourself, just as I think I've made a reasonable choice for myself.

    Best wishes,

    Jun 11, 2015. 09:31 PM | 12 Likes Like |Link to Comment
  • Shell No! I Won't Go Back To Rule-Changing Oil Giant [View article]
    Thank you very much for the kind words, Mike. I'm glad to have been helpful to you and hopefully to others as well.

    Ray Merola is another Shell authority here on SA that readers should know about. He worked for Shell in their downstream division for 30 years and brings that perspective to his many articles and comments on the company. His writings are well worth the time for current and prospective Shell investors.
    Jun 11, 2015. 07:02 PM | 5 Likes Like |Link to Comment
  • Shell No! I Won't Go Back To Rule-Changing Oil Giant [View article]
    While Shell like pretty much all investments has its good points and its bad points, I think the tone of the article is unduly negative. I find the Morningstar comment that "We don't believe that Shell still possesses an economic moat" to be particularly puzzling, if not downright bizarre.

    For me as an early retiree, I view Shell as a medium-risk investment, and as such it is actually one of my smaller positions. But I can't see dumping it entirely for a number of reasons.

    Shell is a pretty well capitalized company, with very little debt. I can't imagine it going away. I seriously doubt they will cut the dividend either. It's a fully-integrated company, so it doesn't suffer from oil price movements in the way an upstream company, offshore driller, or oilfield services company does.

    Shell is very safety-conscious, the "best of the best". (I'd put XOM and STO in this same "best of the best" category also.) This is a very big deal in an industry that routinely deals with very dangerous substances, as BP investors discovered to their chagrin back in 2010.

    Shell has a number of interesting projects and prospects. Despite large cost overruns, Pearl GTL has been a great investment and a huge moneymaker for them. The Prelude floating LNG platform is a great concept and will likely be a big moneymaker in the future also. And despite all the hand-wringing over drilling in the Arctic, there is likely to be an enormous amount of oil in Shell's leases there.

    Shell has long had an emphasis on natural gas rather than oil, and currently produces more gas than oil on a barrel-of-oil-equivalent basis. This is likely to serve them very well in the future as the world transitions away from dirtier fuels like coal.

    The issue of the Scrip Dividend Programme being turned on and off is a minor nuisance in an IRA. If you are reinvesting dividends you will need to change share classes from time to time, but the transaction costs will generally be pretty small. (In a taxable account you have other possible tax-related concerns, which is why I now own B shares in my taxable account and no longer DRIP them.) I would not let concerns about the SDP or share classes deter me from an investment in Shell.

    There are certainly things I dislike about Shell. Their management direction changes too often, and I feel they are overpaying for the BG Group acquisition. But I really don't see any reason for extreme negativity. For most long-term investors I think Shell would be an entirely reasonable investment.

    As for portfolio weight in the energy industry, I think the next several months will be a good time to go overweight in energy. My crystal ball is fuzzy, but I don't think the current low oil price environment will persist for years and years; I think it will end in the next year or two. I think the sector is currently bargain-priced, and I'm seriously considering increasing my holdings in the sector.

    Disclosure: Long RDS.B, STO, VDE/VENAX, and other energy-related investments.
    Jun 11, 2015. 06:27 PM | 14 Likes Like |Link to Comment
  • Shell No! I Won't Go Back To Rule-Changing Oil Giant [View article]
    Mike and Nicholas, you're both partly right. RDS.A is not subject to Dutch withholding if and only if the shares are enrolled in the Scrip Dividend Programme. RDS.A dividends taken in cash are subject to 15% Dutch tax withholding. Putting RDS.A into a retirement account does not change this.
    Jun 11, 2015. 05:14 PM | 7 Likes Like |Link to Comment
  • Shell No! I Won't Go Back To Rule-Changing Oil Giant [View article]
    My understanding is that Shell originally offered the Scrip Dividend Programme not because it didn't have the money for cash dividends, but rather as a way for shareholders to receive shares without the 15% Dutch withholding on dividends. They also had a share repurchase program in effect to offset the dilution.

    Shell discontinued its Scrip Dividend Programme because due to quirks of Dutch tax law it was forced to issue only A shares under the SDP, but repurchase only B shares while the SDP was in effect. For many years, the differential in prices between the two share classes was around 3%, so Shell was effectively losing 3% on the total package, a reasonable price to pay for such a shareholder-friendly program. However, the differential widened to around 9% around the time Shell discontinued the program, and this high differential is why they discontinued it. Upon discontinuance they could repurchase the much cheaper (at the time) A shares.

    The differential narrowed and Shell decided to conserve cash in the face of an oil price slump, so Shell discontinued repurchases and reinstituted the SDP.

    Shell has stated that if the BG Group acquisition goes through, they intend to again discontinue the SDP and embark on a major share repurchase program to offset the dilution created by purchasing BG Group largely with Shell shares. IIRC, this would occur in the 2017 time frame.

    The on-again, off-again nature of the SDP is frustrating, but Shell has valid reasons for what they are doing. They are trying to be as shareholder-friendly as possible without incurring unreasonable costs.

    Given that the differential in prices between the 2 share classes is unusually low, at around 1% recently, I currently hold B shares and take my dividends in cash.
    Jun 11, 2015. 05:08 PM | 17 Likes Like |Link to Comment
  • Shell No! I Won't Go Back To Rule-Changing Oil Giant [View article]

    The only "bonus" you get is that RDS.A dividends taken in scrip instead of cash aren't subject to the usual 15% Dutch withholding tax on dividends.
    Jun 11, 2015. 04:39 PM | 5 Likes Like |Link to Comment
  • Shell to start selling "premium-plus" gas [View news story]

    The old Shell gas seems to have improved my car's performance relative to cheap gas (see my post below). I have no experience yet with the new Shell gas, but at least in my case the old gas did not "create gunk, corrosion, and wear"; it appears to have done the opposite.

    I would infer from Shell's marketing that they believe the new gas is even better at reducing gunk, corrosion, and wear than the old gas was, not that the old gas was bad.
    Jun 10, 2015. 01:06 PM | Likes Like |Link to Comment
  • Shell to start selling "premium-plus" gas [View news story]
    Like others here, I take care of my cars and keep them a long time. My current ride is 17 years old.

    I used to think that all gasolines were alike. They aren't. They generally use the same base stock, but the additive packages are different, often very different.

    Before I knew better, I used to buy the cheapest gasoline I could get. It seemed to work OK. The engine would "hunt" for the proper RPM when it first started. I thought there was something wrong with the car -- maybe the oxygen sensor or something.

    Then I learned more about gasoline, and decided to try a few tankfuls of only the best gasolines instead of the cheap stuff. My car started running noticeably smoother (even though it wasn't particularly rough to begin with), the "hunting" stopped, and fuel economy improved by 10 to 15%. I'm still somewhat amazed at this.

    I now only use Shell, Chevron/Texaco, and 76/Phillips 66 gasolines, as based on my research I believe these are the best.
    Jun 7, 2015. 01:32 PM | 1 Like Like |Link to Comment
  • Why Dividend Investors Should Love These 5% Yielding European Stocks [View article]

    The question of whether to own RDS.A or RDS.B comes up often. The best guidance is in these two resources:

    Dividends Boom's article on the subject and its comments (comprehensive but very long):

    My Instablog post and its comments (relatively short; adequate basic guidance for most investors):
    Jun 7, 2015. 01:07 PM | 1 Like Like |Link to Comment