ECP | Luxemburg, 24.04.2020
We have been asked over the last days on how we exploit the current weakness in the oil price.
For the ones believing in a swift oil price recovery, a simple and easily implementable trade is going long an oil ETF. We have two concerns with this strategy. First, as value investors we focus on earning power, namely the capacity of our investment to generate discretionary free cash flow. Unfortunately, a commodity does not generate cash flows and the return realized on owning it is simply the result of where we see the price in the future. Forecasting demand and supply of oil is not our business and we have not met anyone lately who had accurately predicted this year’s fall in the oil price, the result of an external demand choc due to COVID19 and a supply choc due to the Saudis decision to massively increase production.
Mit freundlichen Grüssen aus Luxembourg
Léon Kirch, CIO & Partner
