After holding them for about a year, I sold my last shares of Oasis Petroleum today. Normally I’m fairly reluctant to sell shares of stock after I have bought them. I generally ignore the price of the shares after I’ve fully established a position since it really doesn’t matter so long as the company is doing well. In this case, however, I decided that things had changed fundamentally with the company; therefore, it was time to sell.
I bought the stock at probably the worst time – right near the top. I bought the shares for two reasons: 1) I wanted a hedge against inflation in energy prices. Buying an oil producer fit this bill. 2) I thought that there was room for growth since the company is fairly small and drilling in the Dakotas where they are just starting to tap the resources.
Unfortunately, the Saudis had a different plan. Because of high oil prices, America started developing oil fields that they hadn’t in the past. The development of the hydraulic fracturing, or fracking method, allowed oil to be extracted from wells long since abandoned. Suddenly the combination of high oil prices and new technologies caused an American oil boom where the US was producing enough oil to meet all of its needs for the first time in a long time.
Saudi Arabia and the other OPEC countries realized that the high price of oil were causing their grip on world oil markets to fade. They therefore decided to flood the world with oil and drive down prices. This in turn made it unprofitable to extract oil by fracking. This will cause the oil frackers to go out of business. They could start up again if oil prices rose enough, but because of the high start-up costs, one or two restarts would drain the companies of resources. The OPEC nations know that as long as they keep oil prices relatively low, they’ll own the markets.
And that is where Oasis Petroleum comes in. Because they are a company fracking for oil in the Dakotas, they were greatly affected as the price of oil dropped. While I would normally hold and just wait for the recovery, I realized that the fundamentals of their business had changed and it was time to get out.
I can take a little comfort in knowing that I can deduct the loss against a gain on another stock. I may do this if I have a large gain where the position gets so large that I need to trim it back a little. I can also deduct a portion of the loss against my salary for next year.
Another reason to sell is that I can now put the remaining money into something more profitable. Sometime you just choose wrong – that’s part of investing. When that happens, you need to take your losses and move on. Just remember that one great stock can make up for several bad ones.
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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.