Oil stocks / TGS Nopec “Do something” or better hunker down ?

One reader clearly didn’t like what I said about TGS in my last post:

Overall I think the best advice in such a situation is: Either you panic early or you don’t panic at all. For the early panic it is already too late for oil related stocks in my opinion, so the only alternative is to sit it out.

IMHO this is a quite bad, perhaps even dangerous advice.

I think it is OK to revisit and reassess the single share in regular periods only, like once a year, and not everyday. But blindly holding a share only because you missed selling it in better times is IMHO not much different to throwing good money (the remaining money in the share) after the bad (the money already lost due to a missed time of selling.)
When reassessing the share the question should be “Feel I comfortable with the share for this price right now?”, but not “How much did I win or loose with thisshare in the past, so can I afford to sell it?

For TGS, but even more for Hornbach I miss the objective analytical decision I am used from from you. A sample of questions like
– At what times do you want to reassess these shares? (Perhaps after reading the annual report?)
– What would be objective factors for you to sell or hold them or even to add additional shares?
– Which answers toward the actual stresses would be OK and which one would be in the No-Go-Area?

First things first: No advices

As I have mentioned in the comment, let’s clear one thing up front and I can’t stress it often enough:

Nothing in this blog is meant as investment advice !!!

What I am writing here is my personal opinion and what works for me. Readers might find it useful others not. The only advice I intend to give is the one to myself. As I have mentioned many times: I am an amateur stock investor. If you want “advice” there are a lot of professionals who will happy to give you advice.

Q&A with myself on TGS Nopec

1. Why did I buy TGS Nopec ?

Because I thought and still think that TGS Nopec has a competitive advantage in the seismic data area due to the flexible “capital light” business model.

2. Would I have bought TGS if I had known that oil goes to 30 USD/barrel

Obviously not. I had factored in a certain cyclical low but clearly not current prices.

3. Do I have an opinion on future oil prices ?

As I didn’t see the big drop coming, I don’t dare to make any predictions on future oil prices either. I don’t think the current price is sustainable in the long run but I have no clue if oil can go even lower or how long it can remain at those levels.

4. Does TGS face an existential threat ?

Unless oil demand goes down significantly in the near future, oil companies will have to replenish reserves or stop being a going concern. In order to do so they need seismic data. In my opinion TGS can sustain even a longer period of low prices by adjusting the exploration expenses. As they do not have any debt, the likelihood of going out of business is low in my opinion.

So what to do now ?

Coming back to my initial “advice” of “just sitting it out”, what does it mean or would it be better to “do something” as the reader suggests ?

Let’s look at this quite famous graph which in my opinion shows very well the typical behaviour of investors in cyclical stocks/markets:

Anyone who is active in the stock market has seen this one way or the other. The difficult part is figuring out at what stage we are in cycle with oil related stocks. I think I bought somewhere at Stage 3 or 5. Right now, I do think we are most likely somewhere between stage 8-12. So if we would know at what stage we are, we could either sell out and buy cheaper or buy more and mae a lot of money.

As nice as the chart looks like, it doesn’t really help you real-time because it is (at least for me) impossible to say where we are in the process. Maybe most of my readers are smarter than I and play this game perfectly. However the much more important part for me is the following:

Based on what I said in before in 3. and 4. I do think that at some point in time TGS Nopec will rebound and will be higher than it is now. I also know that I am really really crappy at trading and that I have no idea what the oil price will do next. So with that information for me, selling TGS Nopec right now doesn’t make a lot of sense. I am now around 1 year and 3 months invested and my horizon is 3 to 5 years. Buying more then ? Difficult question. I do like TGS but I am also looking at other “casualties”. Aggreko for instance is an interesting stock with oil exposure or some others.

So over all, for me personally the best strategy is “do nothing” and sit on my ass instead of trying to do something and lose the cycle game.

The perils of “doing something”

Many investors think they need to do something if prices move in one direction or the other. More often than not this results in the behaviour shown above and losses/opportunity costs. Nevertheless it feels good because you are “active” and you “do something”. For me this is typical “first level” thinking, typical of investors who think investing is about looking at blinking stock tickers and prices.

When do you really need to do something ?

There are a few situations where it might be necessary to do something. For instance if you own a stock which “might not make it” because of leverage or some other existential threat, then selling out is clearly the best option. Tesco and Buffett is a good example, or the German utilities (leverage plus rules changed).

With TGS Nopec, I don’t see this at least at the moment. Maybe the break through with batteries and mass market electric cars is around the corner then clearly oil would have an issue. But for now, the oil price drop seems to be a supply issue, not a demand problem.

Summary: Sometimes hunkering down is better.

One real world example where any action is bad is when you are caught in a thunderstorm outside on the field. Instincts tell you to run or hide below a tree but in reality the best solution is to hunker down and wait it out:

I do think in the stock market there are many situations where hunkering down is better and safer then doing something. This applies both to single stocks which are in a correction due to some cyclical external factors as well as the overall stock market.

Don’t let yourself fool by people who tell you “act now or it’s too late”. Those instances where speed is essential for value investors are very very rare.

Again a final reminder: THIS IS NO INVESTMENT ADVICE. Do your own research or go for professional advice. Don’t rely on anonymous amateur bloggers.


  • Increased my TGS NOPEC position by ~1% of Portfolio Value at 142 NOK. Reason: The proposed deal to buy competitor PGS library looks like a very attractive and countercyclical transaction.


  • I have to admit that I added a small amount (0.3% of the portfolio) to my TGS position at 141,55 NOK/share

  • nice article 🙂

  • I feel honored that you splashed out this quite long blog entry for my comment. I was already satisfied with your short comment. 😉

    “or would it be better to “do something” as the reader suggests”
    I suggested to reassess the share, not to start wild actions.
    Think again or set a date when to think again, open-ended.
    I am glad you did exactly that, a serious und consistent reassessment.

    “Don’t let yourself fool by people who tell you “act now or it’s too late””
    I agree sooo much with you now!
    ‘Act now or its too late’ – ‘If you didnt act yesterday its too late already’: This idea was the core for my resolute opposition.

    PS: I won’t use the a-word anymore. 0:-)

    Best regards!

  • Hello mmi,

    Perhaps the commentator and you mean the same thing.

    When I own a stock and check it, I ask myself would I buy it now at this price. If I would not buy it now, I will sell it. That means for me to ponder the pros and cons, what I expect to earn from the stock and whether there are better investments available to me under the condition my portfolio meets my diversification requirements.
    It appears to me you did something like this with TGS and expressed yourself in a way that let the commentator to the conclusion you decided to hold it because already it was down very much.

    For the reasons you detailed oil stocks are difficult investments. Most likely the oil price will go up one day. If this takes a long time one may suffer significant opportunity costs. Also one may sell too soon in the upswing, therefore the return may be less than the opportunity costs.
    It seems not to be a problem for TGS, but other oil companies may not survive until the cycle turns.



    • Hi Milud,

      i used to think the same, if I would not buy then sellit. In the last years however I also looked at my past transactions and found out that I always sold the real winners much too early. So for me the rule now is: If I find something better, then I sell.

  • Also agree fully.
    However, given that 90% of shale is sustainable at levels above $50 only It appears logical to me that either the price rebounds above that threshold and shale remains a major source of oil or many shale producers will be squeezed out. Either way it is a bet with a high likelihood that oil is to rebound to around $50 to $60 in the long run. When that will happen, I don’t know. In the meantime cost intensive companies might be in trouble. For TGS, however, this could be an opportunity due to their cost advantages relative to the market. Haven’t bought any shares yet but will consider if price comes down further.

    • One remark here: I do think that costs have come down for shale significantly. Many people are using cost curves from 2-3 years ago which in my opinion are outdated. You only have to look at the margin compression at the oil service companies…

      • Some of the efficiencies result from technological advance and cheaper drilling as suppliers are squeezed first; some have to do with simply producing more oil earlier in the life cycle of a well. Difficult to say what the actual numbers are.
        I think that the market of oil service companies is to find equilibrium still so that some of the gains from margin compression will likely reverse. The gains from technological advance should be sustainable though.

        • Seb, you are completely right. Nevertheless I do think that some of the costs are very flexible. The easiest example: Royalties for the land owner. They are usually a percentage of the price and therefore fully flexible.

        • Hello mmi,

          Will companies with a lot of fixed capital produce as long as they achieve a marginal return, as long as they cover their variable costs? Perhaps somewhat longer as creditors hope that soon oil prices will rise and they do not have to write down theirs loans.
          Will the companies be able to reduce costs paying suppliers, workers, creditors, government less, who are willing to accept this instead of losing everything?
          Will state oil companies with low production costs and certain income requirements produce more to earn the budgeted income?
          Does all that mean prices will fall more before supply shrinks? The low price and the duration of the down cycle is difficult to forecast due to all the factors influencing it?


  • Hi there,

    I totally agree with your view. I am also on the stock and I’ve increased the position. I am also no good at forecasting (oil prices) but when 60% -roughly speaking- of oil producers are loosing money is just a matter of time that situation will back to normal and TGS is more than capable to digest this storm.
    On a different page I do not agree with you regarding German utilities. But this is a much more complex issue (although in the end the question is very simple: Will German conventional generators will be paid according to -at least minimum- standards or will be let down/broken?). The question is tricky…German Gov. will need (and needs) the conventional generators. This highly controversial issue is a no brainer for me although I have to recognize that in today’s debate it is quite fancy to back renewable -whatever the price-.
    In order to not distort the thread I will send you my private thoughts on this matter.

    Take care.

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