Oil Investment Secrets: The Beverly Hillbilly Effect
Come and Listen to a Story…
In the early 1960s, the Ballad of Jed Clampett, theme music for TV’s wildly popular “The Beverly Hillbillies,” told the story of a “man named Jed,” who discovered oil literally bubbling up from the ground on his backwater Tennessee land. Next thing you know, the OK Oil Company paid the dirt-poor dirt-farmer $53 million for his property.
After that, the extended clan drove straight to Beverly Hills, with their belongings, beloved dog Duke, and recalcitrant grand-mother loaded into a 1921 Oldsmobile Model 46 Roadster much in need of repair.
In “Californy,” grand high jinks ensued for nine years, from 1962 to 1971.
One of the show’s biggest fans was President John F. Kennedy, who personally knew some of the cast members and enjoyed the “country vs city” humor as a likely diversion from impending nuclear war against a real-life former dirt-farmer by the name of Nikita Sergeyevich Khrushchev.
The oil investment boom of that long-gone era still survives, albeit in a much different form. Gone are the wildcatters, land speculators, and outright sales of “potential gushers” to oil companies. Today’s oil investors buy shares in energy companies, ETFs, futures, options, and get in on direct, crowd-funded opportunities.
The 4 Standard Ways to Oil Wealth
In addition to purchasing the commodity directly and storing crude oil yourself (not recommended for new investors with small garages and no experience with this extreme form of direct participation), there are hundreds of stocks that refine, sell, explore for, and/or produce crude oil.
Purchasing corporate energy/oil stocks is one of the least risky way to get into the oil sector as an investor.
Way three is gaining popularity, and that’s the ETF route. The crowded marketplace for exchange-traded oil funds is still booming, and lets investors gain exposure to the entire market without being tied to one company’s stock.
There are also leveraged ETFs (see below) for people who want to add some spice, and risk, to their oil portfolio.
Finally, one of the oldest ways for speculators to take part in the fast-moving oil industry is through futures contracts.
Long before the Clampett era (the 1960s), seasoned investors flocked, and still flock, to futures contracts on oil, placing their bets on whether the price of crude will rise or fall during the contract period.
Not for new investors, futures trading is for those who have already spent a few years studying the oil sector and learning its unique quirks.
Crudefunders and EnergyFunders: Oil Leases Made Simple
A fifth way to take part in the world of oil investment is through crowdfunding platforms.
Crudefunders allows participation for both accredited (Regulation D) and non-accredited investors (Reg CF), while EnergyFunders currently only offers platform membership to accredited investors.
Both platforms offer direct participation in oil exploration and operation phases of drilling.
For as little as $500, virtually anyone can research one of the listed drilling/exploration projects and buy in.
This is the closest that an average investor can get to owning a so-called “oil lease” on productive land. In fact, the vast majority of oil investors do not own any wells, land or drilling equipment.
The Best of the Best Oil ETFs
For those who want to get balanced exposure to the oil industry, the following ETFs are among the most popular, and all have long track records of low fees, good service and complete transparency:
USO, the United States Oil Fund, from the United States Commodity Fund (USCF) LLC, is a $3.2 billion asset fund that uses short-term futures contracts to track the industry’s movement.
USL, the United States 12-Month Oil Fund, also from USCF LLC, uses long-term futures contracts to pace the entire oil sector.
DBO, from PowerShares, is an ETF that works to mimic the oil market by investing in long-term futures contracts.
OIL, from iPath, is not technically an ETF but an exchange-traded note, or ETN. There are pluses and minuses to owning ETNs, but some investors like to diversify their portfolios by owning both.
A word about “leveraged” ETFs: If you can handle more than the usual amount of risk, there are several exchange traded funds that seek to return double the movement of the oil sector.
Available in most every market niche, these leveraged ETFs are a good way to double down on expectations that oil will go up or down.
That’s right, there are even “inverse” leveraged ETFs for oil speculators who think the sector is headed for trouble. (When oil does badly, you do well).
Two triple-leveraged ways to invest: Two ETFs that aim to triple the ups and downs of the oil market are OILD and OILU, both sold by ProShares Capital Management.
For OILU, the goal is to return triple the increases of Bloomberg’s crude index. This ETF is strictly for risk-tolerant, sophisticated investors who expect the sector to perform positively in the very short term.
Note that all leveraged funds are meant to magnify the market on a daily, not long-term basis. That means it’s a day-trading mentality for those who are looking to make a quick kill and exit.
If you think the oil sector is about to tank (pun intended), a triple-inverse ETF, OILD is the way to wildcat from the comfort of your computerized office.
The most popular oil ETF, a product of U.S. Commodity Funds, is USO. Right now, USO merely tracks the market in a non-leveraged way, but the fund’s owners have filed with the SEC for a new leveraged product that might win approval sometime in 2018.
The Big Picture for “Crude,” (Oil That is, Black Gold, Texas Tea)
The latest from Investor’s Business Daily analysts is that 2018 should be quite positive for oil investors. (That means, “Stay away from triple-leveraged inverse ETFs!”). IBD’s quick take on the immediate state of the oil market is this: Several key stocks are now moving into “buy” territory, based on both fundamental and technical analysis indicators. The new U.S. tax legislation should also be a boost to energy stocks at least for the first quarter of 2018.
Due Diligence: You Know the Drill
You might not earn $53 million on your oil investments and move to Beverly Hills with your family, but the oil sector is apparently poised for a very good year.
Whether you’re a first-timer with just a few dollars, or an accredited investor looking to plunk down much more, there is truly something for everyone in today’s diverse world of oil and related energy products. Y’all come back now. Ya hear!
Note: We’re not investment advisors. The above discussion is for informational and educational purposes only. Always discuss your investment strategy with a professional before committing any funds. In the meantime, keep reading, researching and doing as much due diligence as possible. Investing might be loads of fun but it is not a game. Your money is on the line, so get professional advice every step of the way.