 Good day fellow investors. One of the overwhelming requests I got in a video when I said, okay, let me know what you want me to analyze, where to analyze oil stocks. And let me give you just Occam's razor investment thesis on this. When you invest with thin sectors with tailwinds, even if you make mistakes, those might get corrected by the structural tailwind. Oil has a lot of headwinds. So you must be very, very careful when you invest in oil stocks. I am long an oil stock. I'm long a natural gas stock. But the price earnings ratio I bought was free. That saves me from mistakes. In any case, I've made an analysis of the oil sector, the fundamentals, the companies, the most, the critical issues. And I really think if you're invested in oil or thinking about that, this will be a really, really valuable video. Also for sector analysis, stock analysis, subscribe to this channel and click that notification bell. So let's start with 10 key things you must know before investing in oil stocks from the bull, bear, thesis, how to invest, when to invest, when will we hit the bottom? What are the forces that work in the field? And what you have to keep in mind, what are the fundamentals? What you have to keep in mind to make low risk, high reward investments? Let's start with this report that I have published on my stock market research platform. And I think it will really be interested also for those who are not subscribed to my stock market research platform. If you want to check more about that, please check the links in the description below. So there was an overwhelming request to look at oil stocks. I did that and the diverging situation when it comes to oil is the following. Most of us still use it on a daily basis as the number of electrical cars on the road is still minimal and slowly gaining traction. But sentiment related to climate change, emissions, oil, fossil fuels, laws, etc. is strongly turning against oil and therefore there might be a structural shift ahead. And that's the risk reward when it comes to investing. And you have to see what will be the impact of that structural shift ahead. And that's something very important because you don't want to end up like those that invested in horse farms in the United States. The number of horses went down what 80, 85 percent over 60 years. That's not a positive trend to invest in. Similarly, to use something more contemporary coal, if we look at coal it has reached peak coal in 2014 demand. But already the investments, the ETF coal is down 80 percent since 2011 as the structural headwinds prevail and mistakes easily compound. And you lose a lot of money. That's the risk reward. And that's the risk reward. We have to also be careful when it comes to oil. It probably will not be like coal but we have to look for potential oversupply, the supply and demand in the sector, how that fits a specific investment, put that into perspective. And then something very important. Okay, we see a structural shift but those that are in the industry don't see it. CEO Darren Woods from the Q4 earnings conference call of Exxon said, we know demand will continue to grow driven by rising population, economic growth and higher standards of living. And they are preparing. So all the stocks that I looked at investor presentations all are preparing for growth, growth, growth, growth, growth. The key is who will be right? We don't know. Nobody knows. We will see in the future. But when you're investing, you have to be investing a way that if you're wrong, you lose little or you don't lose. If you're right, you make a lot of money. Exxon, if they're wrong, they will lose a lot of money. And that's the risk reward also when it comes to investing. We don't know the future, but we can estimate risk and reward. So what's the current situation with oil? We later discuss the longer term situation. We have the coronavirus. China is quarantined, shut down, declining. And oil is consequently also falling to $50 a barrel that range. We'll see how it develops over time. But it shows how weak oil prices are. And then we have to compare the potential oil prices against the structural headwinds that might or might not come in relation to what are the companies projecting. And we have already seen a structural shift when it comes to oil. 2014 prices above 100, Goldman Sachs projecting 200 oil, but then oversupply from shale oil and bam, we are down to an average of 50 over the past years with ups and downs. There will always be ups and downs when it comes to oil. And to paraphrase JP Morgan, oil prices will always fluctuate. Then we look at the forecasts for the sector and the US Energy Information Administration is neutral. And most analysts are so neutral, they don't expect any shocks, because if you're an analyst and you expect a shock, if you're wrong, you get fired. If you are wrong and everybody else was wrong with you, so there nobody predicts a shock, but there is a shock, yeah, it's okay. Then it's okay. So keep that in mind when analyzing and reading reports from institutions and other parties, related parties. So takeaway is, okay, volatility equals opportunity. But in order to lower your risk and increase your return, you need to focus on the fundamentals. And what are the fundamentals? What are the prices? What are the production costs? Is something we'll discuss now. Most agencies also always wrong in predictions. If we look at what those predicted over time, 2018 prediction was 60. Then it went up to 80. Then now again between 60 and 80. Now the predictions will probably be around 50. But then nobody knows. If we look at this great chart from McKinsey, they say, if demand stays stable, 60 to 70 oil price per barrel, if there is sluggish demand growth 60, if there is structural shift that comes earlier below 50 to 40. But if there is supply gaps, then we are at 90. So they even don't know what will happen. And that's the uncertainty you have to invest. If you want low risk, then you buy a producer that makes money, no matter what, no matter when, what the price, that is on the first quarter of the cost curve. And then you see, okay, whatever happens, I make my dividends, I make my money. Even if we see oil at 40 due to technology disruption. And then on the predictions, we have to see, okay, who is going to take market share from oil, road transport, cars are consuming less and less, even electrical cars are consuming, less chemicals used, less plastics, more recycling, aviation planes are consuming less and less, even if there is more and more aviation. So that something probably will grow. But road transport might contract, marine transport might also contract. And who loses the most? Loses the most exposed, the highest producer with highest marginal cost, which is shale oil and deep water offshore producer. So if you have a company that invests in such projects, know it's risky. If oil prices go to 80, 90, their margins will explode and stock prices will explode. But if oil prices stick to 50, those might go bankrupt. The stock, not the oil well, because somebody else, if when things go bankrupt, the well gets taken over and then starts producing again, when it's profitable to do so. So that's very interesting in how things work. On peak oil, will it be 2040 as some predict, will it be 2020, will it be a 2025? I think that the internet information we have is much, much faster, is moving much, much faster than many expect. And therefore also people's consciousness is moving in different ways. So it's very risky to assess where will this go. Most analysts and most business school are always trained in a linear way, because linear is what you can explain to others. You can look smart, but I don't know and I expect anything and I try to invest in a way that I expect whatever and then see how my investment would fit whatever. Solar is growing, everything is growing, oil is expected to definitely decline. But when, that's a big question. And that's a question that nobody knows the answer. You can only see, okay, what are my guys doing in relation to what's going on? The positives are for gas, so more demand for gas. If oil wells, shell oil, deep water, go bankrupt or stop producing, they're producing less gas. And we might see great jumps up in gas prices, which is always very interesting to see how those things move. As always, if you invest alongside structural tailwinds, you can be or you are being very well rewarded for taking the structural headwind risk, price earnings ratio of three that I invested in my gas company, for example, then you can see how to play that risk and reward. Then something very important is oil investment sentiment. BlackRock lost 90 billion on oil and coal and they joined the 41 trillion investor climate campaign. So if those investors that have a lot of assets under management stop investing in such stocks, you know what will happen to the stock. So that's another risk. Simply common sense risk to assess. Goldman also downgrades Exxon to sell because they don't see the company will earn the return on capital projects of 15%. They will earn half of that. Thus the stock will be much, much cheaper. So if you really want to invest in oil, wait for the sentiment to be extremely negative. We have just a small slowdown in China. Oil is already at 50. What if there is an important global recession that eventually will come US in recession, European recession, then you are oil at 40, 20, and then you can pick the very, very cheap stocks. And that's also why I made this analysis published on my stock market research platform. The knowledge will sit there. And then when the right time comes, you will buy those bargains because everybody will paint the whole sector with the same brush, and then you'll buy those bargains on the cheap because many will go bankrupt. It's a cyclical. Supply and demand will balance even out again. And then you'll make a lot of money on a cyclical. We discussed Peter Lynch. We'll discuss Peter Lynch in the coming weekend how to and when to buy cyclicals from his book. So that will be very interesting. And then the sentiment is still negative. Madman's Jim Cramer is done with fossil fuels. But I think somehow this is just the beginning. So my friend, not yet, not yet focus on the fundamentals, not the relative story. Yes, stocks have high yields, have price earnings ratio that are lower, but focus on the long-term cash flows, the long-term investments necessary, the long-term fundamentals that are there. And you see also P ratio 14 is still okay, not that low. P ratio five would be much more attractive. But then again, you have to see what are the things. 2019 was higher oil prices than 2020. So you have to see whether stocks like Shell, for example, will be able to keep the dividend or not. And what would you do if the stock falls more? Would you be happy buying more, surviving with just eight years of reserves to produce? So they'll have to invest a lot. And then it's always a risk. So I don't like high risk, high reward or high risk, medium reward investments. I prefer when there is low risk, high reward. I looked a little bit of Shell. Their expected return on average capital employed is to be above 12%. But they are not reaching it now it was 7% in 2019. So how can they reach 15% in 2025? Especially if oil prices go down, if they don't reach it similarly as X on their expectations as Goldman Sachs is downgrading, then it will be a big, big mess. And then we have a lot of CapEx, Vertibillion and on 400 billion on revenues, just a small change in oil, it raises all the cash flows for dividends, but the CapEx remains. So there is a lot too much risk for me on those thin margins. Anything can happen. Shell can double in the next six months, but I'm looking at the risk reward. I don't know what will materialize, but I don't like taking those risks. Also very risky projects. Everybody from the majors, global majors expect 65 average 70 oil prices and they are investing based on that. Russians expect 50. And Saudi Aramco has simply the cheapest everything on production. They have a base dividend also. That's why their market cap is almost 2 trillion. But look at their return on average capital employed is 40%. And all the other companies have 15 hope for 15. Shell has 7%, which is insane difference in margins and the natural advantages companies have. So always think about the market, who is the boss in the sector, then compare what you have with what they have and then see how your interests are aligned with the boss in the sector, which is Russia for now. This is very interesting. Look at Total's investor presentation and you see solar panels. It's nothing of their revenue, but everybody is going fossil clean, zero whatever. But then again, they are producing oil and so they can paint a picture whatever they want, but it is oil stocks. And whatever they try, it's probably a waste of money. We know what is the return on investment on this. We know the competition. So it's not 40%. That's how the Aramco has. So be very careful with that. Then again, check the management. CEOs are always salesmen. They are hired to sell their story like we have seen Exxon saying how growth for oil is for the next decades. Then who is the owner of the company? Synopec just issued a lot of new stocks with discount screwing current shareholders. So that's something also you have to watch. Cost is always key. This is nice chart that I find from Schlumberger. Look at the number of rigs. Middle East growing, Central Asia growing, because there the cost is lower. Offshore really dropping and North American land also dropping. This tells you where to look for those investments in oil that will survive whatever and then wait for the right price. You have also very risky companies Vaca and Werthe in Argentina, the new oil field, Vista, oil and gas developing there. But that's a high risk, high potential reward situation that I again don't feel like taking because if oil prices go low, financing issues and all those issues that go alongside these more riskier companies. Then again, projections, California resources, they need 65 oil to do anything. If they don't get it, well you know what will be the result. Again return on average capital employed for Equinor is 15% at 65 oil while the Russians have 50 and the Saudi Aramco makes simply a lot of money with 40% return at whatever the oil price is. Again conclusion, headwind, it's not the compounding sector. If you don't buy it's really, really cheap. The companies that will survive whatever the markets it shoots at them. Then Buffett didn't invest in oil. Buffett gave a convertible loan to Occidental with an 8% yield plus warrants. So he has no downside because bondholders are differently watched in a bankruptcy situation chapter 11 but he has all the upside of the 8% yearly yield plus all the warrants on the stock. So he didn't invest in oil. He invested in low risk, no risk, high upside. That's what he does. And that's what also we have to look at it. Minimize risk and maximize reward. So my takeaway, my conclusion is do want great companies that give possibility to compound for eternity or do want relative bargains that depend on how the market or industry moves especially at this point in the cycle. Focusing on great companies requires a lot of research, patience, hard work but you only need a few over your lifetime and you have a great portfolio. If you want to get into trouble, potential trouble from a risk reward perspective, have an oil stock, pay 13 price earnings ratio for Shell for a 7% dividend and then I would not sleep well over the next years. If it is no dividend everything is cut but there is long-term cash flows projections and the stock is very very down then I will look again. So take away subscribe for low risk, fundamental base, highest reward investing and check my stock market research platform for my portfolios, my stocks and the research I'm doing. Opposite then oil is aviation and I'll be digging into the sector now. Perhaps it will be a sector with tailwinds, we can find compounders, stocks that will do well over eternity and then when you find wine like that you don't have to care about anything else. Thanks for watching, looking forward to comments and I'll see you in the next video.