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« Quantifying the Story at Amgen, Inc. | Main | A History Lesson for Wall Street Resesarchers »

April 22, 2007



Russ -- Thanks for your comment!

You are correct in saying that the volatility is real, whatever the cause. We do regular volatility forecasting as a basis for options trading, and these stocks are certainly candidates.

But I'm not sure what you mean by "heed." I actually had this discussion with my dad once. He ran a foundry that made high-quality cookware as a part of a larger, stable business. Their stock price did not move much, exhibiting a slow growth in line with the stable business.

Now let us suppose that we put this stock in the XLE. It would gain a lot of volatility, even though there was no change in the underlying business.

I think that the upstream energy stocks should trade on oil prices that are years out on the futures curve. These are less volatile than front-month prices.

The volatility does not seem to carry its traditional message about risk.

Thanks for the good question.



A well-developed post.
My question, or concern is the paragraph on Volatility. I completely agree that hedge funds and others are whipsawing ETFs and subsequently some of the underlying issues, such as your riggers. My concern is that you seem to easily dismiss this as unwarranted. The volatility is real, it is there as a result of the hedge funds, and thus it should be heeded, not dismissed. Can you shed more light on your thinking here.


Bill and David --

Thanks for stopping with your comments. I'll check out the rest of your holdings!


Camerata Meiga

Nice post. I own RIG and I'm quite optimistic about them.

One question. You mention that "a slew of new rigs hits the market by 2010".
In your opinion, which would be the best players building those new rigs?

David Merkel

I've had an energy overweight for the last four years, because I have felt that trends in the sector were underdiscounted. My portfolio in full is available at (To get there easily there is a link at my blog on the "My Portfolios" page.) I do hold a few drillers, but I have bought them on weakness. I currently own HP, PTEN, and BRNC. I realize these are land drillers, and their rates have a greater tendency to float at spot rates, but demand is pretty perky for even land rigs at present. I don't see oil returning to the $40s so long as global growth continues.

Anyway, that's what I am up to with the drillers -- they make up 8% of a diversified portfolio, and less in my balanced mandates.

I will have one more "spring cleaning" article on that should be freely available soon, dealing with asset allocation issues.

Thanks for mentioning me.

marlyn trades

The problem with the suggestion that the drillers use their profits for dividends is that they do just that - the money they pour into the RNC is a dividend (of sorts). They are some of the largest political contributors (for obvious reasons) of any.


Thanks for the mention Jeff, even if I am juxtaposed to one of those Nigerian scams...

For the record, I just happen to own GSF for my 'real money' portfolio and think the drillers are a good play right now, even though they won't bring me the type of returns that one needs in the CNBC contest unless Seadrill finally decides to buy one.



P.S. I get your posts via Bloglines every day and have enjoyed your thoughts on the Fed Model, but your recent comment on productivity and reality checks is the one that stuck with me the longest

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