If you are interested in investing in the stock market, oil stock is one area of specialization that you might consider. After all, oil is perhaps the most vital commodity in our modern way of life. If you believe some doomsayers, while the demand for oil continues to rise, there is a finite amount of oil available, and we are running out of it. If that is true, and the iron law of supply and demand is not repealed by some extraordinary force, those who produce and distribute oil must necessarily be in line for ever increasing profits, at least until the oil runs out.
However, there are many variables in the mix, and a look at the fluctuations in oil prices will reveal that an investment in oil stock is not necessarily going to put you on the path to inevitable riches. The valuations of oil stocks are subject to investor demand, just like any other stock, and it takes a serious commitment to monitoring the forces at work to enhance one’s chances of making money by investing in oil stocks.
It’s undeniable that demand for oil continues to grow dramatically. As economies like those of China and India develop, they exert a huge upward pressure on the demand. Regardless how much oil may be held within the earth for the taking, the reality is that not all of it is accessed. In the United States, huge proven reserves exist that cannot be accessed due to political decisions. On the other hand, production from vast oil reserves in other nations is limited as a means of keeping supply from outpacing demand and lowering prices. These are just two forces affecting the value of oil stocks, but there are dozens or hundreds of others.
For those who are convinced that, regardless of these factors, the overall trend for oil stocks is positive, there are several ways to get you money down in support of your opinion. You can take the plunge and do your own investing in individual stocks or you can participate in a venture with others that spreads your investment among several oil stocks. This can be done in two ways.
For those rugged individualists who want to pick and choose their own oil stocks, there are a number of things to consider. Decisions made by someone who wants to take advantage of long term trends in a particular oil stock will be different than those who want to get in and get out quickly, taking a profit with them. An investor can look to buy low and sell high by identifying undervalued stocks, or buy high and sell higher by relying on the continuance of an upward trend, referred to as momentum trading. Trading in oil stocks by any of these means will require that you follow the market very closely for a number of individual companies. Hours of research will be necessary.
At the other end of the spectrum of individual involvement is the practice of investing in mutual funds of oil stocks. While more or less research is demanded before choosing a mutual fund in which to invest, once the decision is made the need to monitor ongoing performance is limited primarily to keeping an eye on how the chosen fund is performing in relation to other such funds.
Between these two investment extremes is the practice of investing in exchange traded funds, or ETF’s. Shares of these funds are like mutual funds in that a management team selects a ‘basket’ of oil stocks in which to invest you money, along with that of hundreds or thousands of other investors. However, unlike mutual funds, which are valued only once a day at the end of trading, these funds values vary throughout the course of each trading day. You can sell your shares of an ETF or buy more at any time based on its performance in real time.
Investing in an ETF is, to that extent, like investing in individual stocks. However, you have the benefit of a management team of experts to make the picks based on their long term analysis of the prospects for each of the stocks in their ‘basket’. You have the advantage of not being tied to the continual monitoring of individual stocks and market trends.
Whatever way you might decide is best for you to invest in oil stocks, doing so is likely to be a long term boon for your portfolio. As demand for oil rises, especially among developing nations, there will be overall upward pressure on the value of the stock of those who produce the stuff. These are just some things for you to consider. There are always risks involved, and there certainly are no guarantees. The final decision of whether or not to pursue investments in oil stocks is yours.
