“Money is all around me”

In my Dec. 16 column, “What makes a successful investor,” I wrote that it takes discipline to be a successful investor. Now, I’d like to add another attribute to becoming a successful investor: you need to be alert to trends.

When I lived in Dallas years ago, my job at Dow Chemical required me to fly across the state. I started flying Muse Air and Southwest Airlines. Muse Air was the anti-Southwest Airlines as Muse Air offered coffee and donuts at the gate during early flights, snacks during afternoon flights, reserved seating and nice comfy leather seats. Soon after I invested in Muse Air it went bankrupt. I could not believe it, and in retaliation I refused to invest in the winner, Southwest. Clearly Southwest turned out to be an incredible success and now I fly Southwest at least twice a month. From then on, I made it a point to be alert to trends and to be less stubborn.

So here is one of the trends I am following. It’s cold out there, especially this week so natural gas is a focus of mine. We are awash in natural gas, so much so, that the U.S. is to natural gas what Saudi Arabia is to petroleum. You know what you get when you burn natural gas? You get water and carbon dioxide. The same carbon dioxide we produce when we exhale, the same carbon dioxide the trees absorb for photosynthesis and the same carbon dioxide our Supreme Court ruled to be a pollutant.

Natural gas currently sells for about $3.50 per million cubic feet but in Europe it sells for the equivalent of $15.00 per million cubic feet. Thanks to Shell Oil, since 1964 we have the technology to compress the gas into a liquid, and hence we call it liquid natural gas or LNG. We are now building LNG plants near ports to fill tankers with LNG and sell to Europe. Yes readers in the very near future we will be exporting LNG to the world. By the way, Russia and by Russia I mean the very unpleasant and untrustworthy Prime Minister Vladimir Putin, is not happy about this at all. After all natural gas is his currency and Europe is his customer. All in all I believe natural gas is a place to invest. A reader might want to buy a company that explores, drills, stores, distributes or uses natural gas. In our investing analysis we seek a diversified approach, we want to own it all, so our investing in natural gas is diversified.

Our reasons are as follows in the scenario that the price of natural gas drops:

  • The exploration companies stop exploring and their stock price will drop.
  • The drilling companies stop drilling and their stock price drops.
  • The storage companies will store essentially the same or more volume of natural gas, hence their stock price are practically unaffected.
  • The natural gas distribution companies are insulated by the fluctuation of the price, as they simply transport the gas thru pipelines and charge a metered rate.
  • The users of natural gas save money and hence make more of a profit off of lower production costs.

Our reasons are as follows in the scenario that the price of natural gas increases:

  • The exploration companies increase their explorations and their stock price climbs.
  • The drilling companies increase their drilling activity and their stock price climbs.
  • The storage companies will store up to their capacity and hence their stock price will be practically unaffected.
  • The natural gas distribution companies are insulated by the fluctuation of the price, as they simply transport the gas thru pipelines and charge a metered rate.
  • The users of natural gas suffer increased costs and hence will lose profit margin until they pass on the price increase to their customers.

Clearly there are more trends to consider and evaluate; this is just one. My goal was to make the reader aware that as that great song by The Troggs says, “Love is all around”. The first chorus of the song:

I feel it in my fingers
I feel it in my toes
Love is all around me
And so the feeling grows

I just like to substitute “money” for the word love and the sentiment is the same.

The opinions and recommendations expressed herein are those of Mr. Garrido and do not necessarily reflect those of the firm and are subject to change without notice. This information is not to be construed as an offer to sell or the solicitation of an offer to buy any securities. The information contained herein has been derived from sources believed to be reliable but is not guaranteed as to accuracy and does not purport to be a complete analysis of the security, company or industry involved.