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  • Writer's pictureIshfaaq Peerally


Job numbers are good so we should have been expecting the market $SPX500 to go up, $oil prices are going down but yet $PE and $CXO are up by more than than 1% today(I just checked $PE and its down by 0.5%). This shows how inefficient the market is and how irrational investors are. Today, we are going to talk about another $oil and $natgas company, $VLO and how market inefficiency made me sell all my shares of this company.

$VLO is a great company, it is a downstream company, that is, it refines and sell oil to consumers. In theory, downstream companies are less risky than upstream companies(oil producers) since they are less affected by commodity prices. If you look at the last 5 years of the average downstream company and the last 5 years of the average upstream company, and you compare their revenues in 2016(this was the year oil prices crash, you'll see that downstream companies are less affected. By this logic, this should be reflected on the stock price. But this doesn't happen, the market will sell oil companies when oil prices go down whether they are upstream, downstream or midstream.

Since, I am investing in upstream oil companies with exclusive operations in the Permian Basin, namely $PE and $CXO, I have to make a choice. IS it worth it having 40% of my portfolio in the oil industry? It is not because the risks are too big. So why pick two upstream companies over two downstream ones if I'm looking for lower risk. It is all about the reward. The potential reward from $PE and $CXO is much bigger compared to $PSX or VLO with only a little more risk.

For this reason, I sold all my shares of $VLO and also $PSX . These are great companies but you need to focus if you want to be a great investor. You can't invest in 30 companies and expect to beat the market(unless you know how to look for small companies nobody is talking about yet).

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