The Oil Trade Doesn't Work in the Here and Now

So maybe long-term Blockbuster (BBI) is a terrible business model, but these days you have to admit it has turned into one heck of a stock. Same thing for the cable stocks like Comcast (CMCSA), Time Warner (TWX) and Cablevision (CVC). Satellite might be the future, but circa-'70s cable seems to have quite a bid as of late.

The point is that you can't write off an investment because of what you think of the long-range fundamentals, or because of how the price acted when Eisenhower was in office. Every single day you have to look at XYZ in the here and now and decide — today — if you want to participate and to what extent.

Of course, deciding to participate in what's going on implies that one truly knows what's going on. As we've written before, savvy traders must continually keep their eyes on the ball. In this game if you miss a few months, you miss a lot.

It wasn't too long ago, for example, when energy stocks, from the integrated producers to the royalty trusts, were on everybody's lips and in their portfolios. Speculators were demonized for pushing up the price of gas, and oil companies were accused of "gouging."

Makes one you wonder, now that the "ruthless" hedge funds are all short crude oil, essentially artificially pushing "down," is Sen. Chuck Schumer (D., N.Y.) going to praise them for helping to lower gas prices for "America's Working Families?"

How times have changed. Even in the face of increased Middle East uncertainty abroad and political change at home, the drop in crude prices has been dramatic, falling approximately 17% this year and 24% over the last 12 months. The trade, which had once been seen as a sure thing, is now the weakest thing on the board. Every market participant, at least those not on mushrooms, has to see that energy, for the time being, is simply not where the money is.

Now maybe you still own energy investments. Maybe T. Boone Pickens is right. Maybe you believe now is the time to add, or at least hold, energy trades. Market moves take time, and with a reasonable position size and other themes at work, I most certainly think energy can be one part of a portfolio that, over time, could pay off.

Consider the wild history of the "Internet stocks," which have gone through no fewer than three boom/bust cycles since Netscape went public back in 1995. In 12 years, both the longs and shorts have had numerous opportunities to profit. And that might be the case with energy as well. Will crude hit $20 or $200? In enough time, it's likely history will see both.

But what matters is how you are positioning your portfolio in today's market — given today's market. For those such as myself always trying to stay a few feet ahead of the herd, energy isn't that appealing a trade right now. And while on TV you're always compelled to "love it" or "hate it," my attitude toward energy is mostly indifference. I'm neither a bull nor a bear, and consequently am simply not involved in the trade.

Of course, it's comforting to know that, should energy markets resume a bull trend, there are innumerable more ways to play the move. Up until recently, oil was virtually untradable outside the futures market. Now there are no fewer than five competing ETFs designed to track the price of crude, literally nickel for nickel. United States Oil Fund (USO; web site), iPath Goldman Sachs Crude Oil ETN (OIL; web site), PowerShares DB Oil Fund (DBO; web site) and Macroshares Oil Up (UCR) / Macroshares Oil Down (DCR; web site). Now you can go long or short companies, or the commodity itself, just as easy as buying GE.

In the final analysis, with all due respect to T. Boone, I think one should avoid being the type of investor whose livelihood is dependent on the success of one particular asset class or trade. The real skill of portfolio management isn't producing last quarter's biggest return or even always picking winning stocks but being able to, over time, put all the moving pieces of the capital markets together to produce a consistent return with reasonable volatility and risk.

For me, that comes down to a number of diversified exposures that are ideally bought for the "long term," but managed in the here and now. And, right now, if crude oil is destined for $100 a barrel, then simply holding $55 would be an encouraging first step for the bulls.