June 14, 2018

Buying Eni from Italy - my second oil company



The two oil companies Total and Eni have appeared in Dr. Stern's personal top 10 list. He already bought the French company Total, and now he's buying the Italian company Eni because of its excellent value and security ranks.

Now you might remember that Dr. Stern believes in the electric future of automobile traffic, because cars with gasoline engines are, just like automatic watches, nice accessories, but hardly a sensible mode of transport. The only reason there are so many of them is that we as a people are lazy, in some cases justifiably so. However, a lot is changing right now, and anyone that has ever driven an electrically-powered car will hardly miss turning the engine off and on at a stop light, nor the roaring of the engine when the car accelerates. Not to mention the fact that you’ll leave any gasoline-powered car in the dust in normal traffic with an electric motor. So why is Dr. Stern buying an oil company? There are various reasons. First, there are other applications for oil besides road traffic. Second, it is conceivable that technical progress will also bring solutions for CO2 exchange. Third, and the most important point for investors, a black future doesn’t automatically mean red returns. Quite the contrary. If you bought VW right after the emission scandal, then you are well in the black today.

Why is this the case? Because the market likes to exaggerate, meaning it likes to make things look more positive or negative than they are. Professor Robert Shiller was able to prove this and received the Nobel Prize for it.

For you as an investor, this means you can buy stocks in industries with bad prospects for the future because those prospects are already taken into account in the relatively low stock prices today. The return on these low stock prices can still be very good. This is especially the case when the problems were overestimated. Dr. Stern has good reason to assume that this is the case for oil, which is why he's buying 140 shares of Eni for a total of around USD 5,000.



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