The Law of Gravity and the Russian Oil Ban
Today, President Biden announced a ban on all Russian oil.
Official sanctions will limit supply and oil prices will soar higher.
Already, prices have spiked 30% in the past two weeks — even before the ban was in place.
Intraday prices hit nearly $139 per barrel yesterday. That’s its highest level since 2008, when it hit $145 per barrel.
But Russia exports about 5 million barrels of crude oil. That only makes up around 12% of the total global trade.
The thing is, during times of geopolitical shocks — like the Russian invasion of Ukraine — markets are not rational.
Instead, they trade on fear…
Back to Earth
Commodities — like oil, wheat or soybeans — should trade on supply and demand.
When demand is high, and supply is low, prices should go up. And vice versa.
However, when geopolitical events get in the way, it turbocharges commodity prices.
If you’re lucky enough to get in before the trend rises, you can make a lot of money. But there’s a big downside…
When fear subsides and traders regain their senses, prices come crashing back to Earth.
For example, the last time oil prices soared was in 2008, right before the financial crisis.
Strong demand and a stagnant supply started a price run-up in 2007. And as prices rose, oil producers held back inventory in order to wait to sell for even higher prices.
But like everything else that soars to the heavens, the law of gravity isn’t repealed.
After oil hit a peak price of $145 a barrel, prices started to go down. Five months later, oil traded at $31 a barrel — a drop of nearly 80%.
That’s why I don’t invest in or trade commodities. And you should avoid them, too…
Even though oil prices have been soaring, we have no edge to take advantage of it.
And on top of not having an edge, it’s very hard to know when market sentiment is turning with commodities.
Trying to invest based on what someone else is doing is a really hard game to play.
Instead, I’ve found that there’s an easier way to make money.
I don’t have to follow geopolitical events or policy, figure out the cost of production or time market sentiment.
All I need to do is figure out what makes a great business, and then buy shares when the stock is trading at a bargain price.
Nothing more complicated than that.
And that’s how I recommend companies in Alpha Investor…
The companies in our model portfolio have an edge. That’s why they’ve seen their businesses grow, even during the current market pullback…
Like Marvell Technology, a chipmaker that’s fueling the next technological revolution.
Or HCA Healthcare, which is the largest nongovernmental operator of acute care hospitals in the U.S.
They’re both trading above my recommended buy-up-to prices today. So, I don’t recommend buying more shares now.
But there are plenty more opportunities in the market right now. In fact, 10 stocks in the Alpha Investor portfolio are trading below their buy-up-to prices right now.
So, Mr. Market is giving you a great opportunity to buy shares at bargain prices. Alpha Investors can check them out in our model portfolio right here.
And if you’re not yet part of the family, don’t miss out on this buying opportunity! Find out how you can access the Alpha Investor shopping list by clicking here.
Founder, Alpha Investor