This Drill is about to Talk

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  • A 200-year-old rivalry sizzles…
  • Callum’s forecast gets a boost…from something he didn’t expect
  • And when only the ‘drill bit’ does the real talking…

Eight dead. Flights cancelled. Factories closed. Wind like pure ice. A polar freeze straight out of the Arctic.

This describes the Northeast of the United States right now.

Oh, and one other thing. There’s a sheepish editor somewhere.

You might recall I was on the east coast of the US back in November.

I came across a curious story about the rivalry between two ‘almanacs’ in America.

These are folksy books that have been around for generations. They give gardening tips, fishing advice, life hacks and practical household ideas. 

And they both put out weather forecasts for the upcoming year.

One of those uses ‘a secret mathematical formula applied to sunspot activity, planet positions and the moon’s effect on the Earth.’

One almanac is called the Old Farmer’s Almanac and goes back to 1792. The other is called the Farmers’ Almanac and goes back to 1810.

Their rivalry and predictions caused a bit of tizz a few months ago.

The Farmer’s Almanac told its readers to brace for a ‘teeth chattering’ winter ahead. The Old Farmer’s Almanac said to expect a mild winter.

Naturally, the audience for this kind of book found itself confused. Which to believe? Should they stock up on thick socks when they’re on sale or happily book flights to visit relatives?

Welcome to how things are in the world of finance too…

Naturally, the Farmers’ Almanac must be crowing right now. They called the big freeze and it turned up.

Their readership will no doubt swell with new admirers.

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However, there’s no guarantee of a repeat performance next year.

Weather systems, like financial markets, are simply very difficult to predict accurately, consistently.

Occasionally things come along that boost one prediction but weren’t part of the original thesis.

I can say that from personal experience. I put out a recent report making the case for the big mining stocks to help push the Aussie market higher this year.

Now a tragic accident in Brazil has knocked down the projected output from big iron ore miner Vale.

This has sent the iron ore price over US$80, and to the highest level since March 2017.

This will pour even more free cash flow into BHP Group Ltd [ASX:BHP] and Rio Tinto Ltd [ASX:RIO] for as long as it lasts.  

Think of all the hand wringing over the China and US trade deal last year. It was enough to spook anyone about stocks heavily exposed to China.

Then something like this comes out of nowhere. Not so bad now, is it?

It certainly gives the credence of my report a boost. 

That’s not all, either…

The pieces keep changing for this puzzle

All last year we heard about rising interest rates in America. Everyone was watching the ‘yield curve’ to see if it would invert.

Experience has taught me when ‘everyone’ is watching for one outcome in the financial markets, it almost never happens.

I told this to my paid readers at the time.

Now the US central bank, the Fed, is backing away from its previous guidance.

The dynamic shifts again.

Suffice to say, there’s a limit to how helpful some general projections and forecasts can be.

The world just doesn’t sit still and there’s a lot of random factors always at play.

To me, this means having pretty clear expectations about how long you plan on investing for in any particular stock.

Macro events come along all the time and send the markets gyrating.

Oil is a good example. It really tanked late last year. One of the energy stocks I recommended in Small Cap Alpha went from being 40% up at one point to below the original buy price. It’s now creeping back again.

But I didn’t recommend selling when it was further down and still don’t.

It was never a ‘trade’. That company has several very exciting drilling prospects coming up this year. One begins next month.

If they hit oil, the stock will fly. If they don’t, it won’t — unless the price of crude oil really takes off (still a possibility, mind you).

The point being is that it’s fine to talk about the Fed and interest rates and China’s economy. All these things have a very real effect.

But ultimately, in the case of an oil explorer as an example, it’s the drill bit that does the real talking. That will determine if this investment is going to be a profitable idea.

We can never know for certain what each month will bring. Almanacs and forecasters, including me, can give it their best shot.

But it’s best to find ideas that have good odds of working out under many different scenarios.

Cheers,

Callum Newman Signature

Callum Newman,
Editor, Profit Watch

PS: If you’d like to consider a punt on this oil share, go here for a look at why it’s so compelling.

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