Not Quite Supertankers

One of the more overused clichés is “it’s like turning around a supertanker.” As a landlubber, I’ll go ahead and assume that’s true in the literal sense. Financially-speaking, though, the business of hauling oil across the world certainly turned on a dime in the past year. Daily earnings collapsed by 99% from last March to the past week as carriers capable of holding two million barrels became very expensive floating storage tanks when there was a glut and are suddenly hunting for cargoes as big exporters try to buoy prices.

Jinjoo Lee and I wrote about the dramatic turn. Our takeaway was that things are looking up for this extremely cyclical business.

A year after their incredible good fortune, an equal basket of four energy shipping firms has lagged the S&P 500 by 70 percentage points over the past year and is right back to its long-term average ratio of price to book value. With life and energy demand returning to normal, this is no time for investors to walk the plank.

Oil and Coronavirus: Will There Be Blood?

I wrote about the tough times in America’s oil patch and how much tougher they have become since the coronavirus knocked about a fifth off of crude prices.

The oil market is more accustomed to dealing with supply shocks than collapses in demand. While strategic reserves can ease shortages, even the most eager Fed chairman or Treasury secretary can’t create demand for a million barrels of oil a day by pushing a button—not that they would agitate for higher pump prices anyway.


Billion, trillion, schmillion

Don’t tell you know who, but, by some measures, the $2 trillion valuation of Aramco only puts it in fairly middling company.

Saudi Arabia’s de facto ruler Mohammed bin Salman wanted to see his country’s crown jewel, Saudi Arabian Oil Co., or Aramco, valued at $2 trillion. Market reality got in the way and he had to settle for a mere $1.7 trillion in last week’s initial public offering, which also was limited to regional investors.

But the first day of trading Wednesday saw the shares limit up—a rise of 10% on the local Tadawul exchange. Another performance like that—and strong social and financial incentives not to sell make that a distinct possibility—will see the sought-after $2 trillion mark breached.

Looked at another way, though, the company’s value is absolutely pedestrian. Aramco’s 1.5% free float means shares owned by the public are worth only $28 billion. By contrast, Microsoft and Apple have floats worth $1.08 trillion and $1.06 trillion, respectively, if one excludes insiders.

In the energy world, North American exploration and production companies Occidental Petroleum, Marathon Petroleum and Canadian Natural Resources are all larger on this metric. Super major Exxon Mobil has a float worth 10 times as much as Aramco at nearly $300 billion.

Now that is a princely sum.

investing · The book

Markets: 1, Analysts: 0


I love making bets. The stakes are never high – usually a beer, a sandwich, or, if it’s with one of my kids or my wife, making the winner breakfast in bed. The real payoff is the smug satisfaction of having been right.

Of course there are lots of things people bet about. If it’s “what’s the capital of Burundi” then you really should be braced for the other person actually knowing it’s Bujumbura. Why else would they agree to a bet? But the winner of, say, the NBA playoffs is unknowable. With the Warriors up two games to none, though, the odds are pretty much tilted in their favor (nearly nine-to-one over the Cavaliers).

A year ago I made a bet with three colleagues at The Wall Street Journal and chose a side before they could. It seemed like a milder equivalent of wagering on the Cavaliers to win but without adjusting the payoff – even odds. I had just received a list of the stocks in the S&P 500 with the highest percentage of buy and sell recommendations from analysts. I guessed that the list of sells would do better than the buys.

Based on what I write in my upcoming book, Heads I Win, Tails I Win, not only aren’t analysts very good at picking stocks but you can gain a slight over the market by going against them. I figured I had a slightly better than even chance of winning, putting a small amount of money where my mouth was.

I didn’t even look at the list before making the bet. After I did, though, I started to worry. On the “buy” list were Facebook, Google, and various microchip stocks. They actually did well. On the “sell” list were a bunch of energy stocks that did pretty badly since oil prices proceeded to keep falling for several more months. There were also a bunch of dull stocks, though, such as utilities and breakfast cereal makers. They were boring but beautiful.

The year has come and gone and, despite an awful showing by some energy producers, the sells did nearly two percentage points better on average than the “buys” on average. In fact, the “buy” list lagged the S&P 500 by almost four percentage points. Theory validated!

Burton Malkiel, who wrote a very nice blurb for my book, once quipped that blindfolded monkeys can do as well as stock pickers. One fascinating study shows they probably can do better. So, with all due respect to analysts (and I really mean it – I used to be one after all), you should never buy or sell a stock based on their recommendations.