In an earlier piece (see Did Porinju Veliyath Commit A Tactical Error …) I lamented that Porinju Veliyath is the last man standing on board the sinking ship known as Selan Exploration. Porinju’s PMS, Equity Intelligence, is the single largest shareholder of Selan Exploration with a massive holding of 5.07% of the total equity.
Unfortunately, Porinju badly mistimed his aggressive purchase of the Selan stock. He bought the stock at the peak of the crude oil cycle. Since then, crude prices have plunged and Selan has been on a steady decline. It has lost 44% on a YoY basis. Since I wrote the piece in September 2015, Selan has lost about 20%.
Porinju appears to have been in a state of denial. When Goldman Sachs predicted that crude oil prices could plunge to a low of $20 per barrel, Porinju reacted angrily and called the prediction “shameful”. Even Rakesh Jhunjhuwala’s sagely advice that he is “very bearish on oil prices” appears to have been disregarded by Porinju.
The present position is that crude oil prices have plunged below $30 per barrel. Also some experts have opined that “$20 Oil Is Now A Distinct Possibility As Chinese Demand Wanes”.
Now, in the midst of this doom and gloom, there is a ray of hope that we are at the end of the dark tunnel because Warren Buffett, the World’s greatest investor, has sent the green signal that oil prices are close to bottoming out. His Berkshire Hathaway recently bought a huge chunk of Phillips 66, a company engaged in crude oil exploration and production. Berkshire Hathaway’s total investment in Phillips 66 is worth nearly $5 Billion (Rs. 32,500 crore).
Other savvy investors are also expressing the same opinion as Warren Buffett.
Arvind Sanger, the founder of Geosphere Capital Management, was quoted as saying that he is “heavily bullish on the oil and gas sector right now” and that it is a “once-in-15-years opportunity to buy oil and gas companies at time when oil and gas prices are at such a depressed level”. He opined that the low crude oil prices are “completely unsustainable” and will be “double if not higher, in the next 12 months”.
DK Aggarwal, CMD at SMC Investments is of the same view. He cited Warren Buffett’s classic “Be fearful when others are greedy and greedy when others are fearful” doctrine in support of the theory that the time is ripe to buy crude oil related stocks.
The most important aspect is that Goldman Sachs is itself of the view that crude oil prices are bottoming out. It has also predicted a “commodities bull market” in 2016 and opined that crude oil prices could surge to $40 per barrel in the first half of 2016.
So, Porinju may in fact have the last laugh and we may someday have to compliment him for the sagacity to stay invested in Selan Exploration as per his conviction despite the opinion of the experts!