Welcome to the May 2009 issue of Condor Monthly!
This issue is now available online along with an archive of past issues. To access past Condor Monthly and Condor Newsletters, just click on the link below or copy & paste the link into your favorite browser.
Please continue below to view the "From the Portfolio Manager" and "Financial Planning Corner" segments in this month's issue.
From the Portfolio Manager
Chevron
(CVX)
Chevron, an integrated energy company with exploration, production, and refining operations worldwide, was recently added to Condor's Large Cap Growth strategy portfolios.
Diverse Set of Worldwide Assets
With production of 2.6 million of barrels of oil equivalent a day, Chevron is the second-largest oil company in the U.S. Refineries are located in the U.S., U.K., South Africa, and throughout Asia for a total refining capacity of more than 2 million barrels of oil a day. Operations also include an extensive retail outlet network, pipeline system, and chemical business.
Attractive Growth Prospects
Chevron has placed considerable focus on ensuring rising production rates, as it has aggressively set out to identify oil and gas assets that will deliver well into the future. Focus areas include deep-water projects in the Gulf of Mexico and West Africa, as well as projects in the Gulf of Thailand and northwest Australia. Gas will also become a greater proportion of the production mix as investments in liquefied natural gas infrastructure, midstream gathering assets, and gas-to-liquid facilities come on line.
Excellent Financial Shape
Over the last few years, the high costs for oilfield equipment, oilfield services, and refinery upgrades have created challenges for energy companies. However, Chevron is currently in negotiations with many of its suppliers and input costs are expected to fall dramatically over the next 12 - 18 months, helping to improve cash flow. Additionally, the company currently has very low levels of debt, maintains a AA credit rating, and pays a dividend of 3.76%.
Chevron is in excellent financial shape and well positioned to survive in a world of $45 - $55 per barrel oil prices. Additionally, Chevron is also well positioned for a more favorable energy environment due to the strong economics of the projects coming on line in the next 18 months. While it is unlikely that the company will be looking to make acquisitions in the near-term given the wealth of projects coming online, its strong balance sheet certainly affords it the ability to be opportunistic. Overall, we believe Chevron has one of the best risk/reward profiles in the industry.
Diverse Set of Worldwide Assets
With production of 2.6 million of barrels of oil equivalent a day, Chevron is the second-largest oil company in the U.S. Refineries are located in the U.S., U.K., South Africa, and throughout Asia for a total refining capacity of more than 2 million barrels of oil a day. Operations also include an extensive retail outlet network, pipeline system, and chemical business.
Attractive Growth Prospects
Chevron has placed considerable focus on ensuring rising production rates, as it has aggressively set out to identify oil and gas assets that will deliver well into the future. Focus areas include deep-water projects in the Gulf of Mexico and West Africa, as well as projects in the Gulf of Thailand and northwest Australia. Gas will also become a greater proportion of the production mix as investments in liquefied natural gas infrastructure, midstream gathering assets, and gas-to-liquid facilities come on line.
Excellent Financial Shape
Over the last few years, the high costs for oilfield equipment, oilfield services, and refinery upgrades have created challenges for energy companies. However, Chevron is currently in negotiations with many of its suppliers and input costs are expected to fall dramatically over the next 12 - 18 months, helping to improve cash flow. Additionally, the company currently has very low levels of debt, maintains a AA credit rating, and pays a dividend of 3.76%.
Chevron is in excellent financial shape and well positioned to survive in a world of $45 - $55 per barrel oil prices. Additionally, Chevron is also well positioned for a more favorable energy environment due to the strong economics of the projects coming on line in the next 18 months. While it is unlikely that the company will be looking to make acquisitions in the near-term given the wealth of projects coming online, its strong balance sheet certainly affords it the ability to be opportunistic. Overall, we believe Chevron has one of the best risk/reward profiles in the industry.
Financial Planning Corner
Cognitive and Emotional Investor Biases
During difficult market environments, different investors tend to react differently to the volatility that is taking place in their portfolio and the constant stream of negative news that they are bombarded with daily. Investors may not even be aware that they hold these biases, but it is important to remember that these biases may be hindering a portfolio's growth potential. There are two types of biases that exist in investors: emotional and cognitive. Emotional biases are related to feelings, perceptions, or beliefs and are often involuntary. Cognitive biases are distortions in the rational mind and have to do with statistical, information-processing or memory errors. We have taken time to go through some of the biases, as listed in Investment News, to help our clients identify these preconceived notions and hopefully remove these barriers from their minds.
Emotional biases
Loss and regret aversion - Often times it is easier to feel the pain of losses over the pleasure of gains. Investors hold losing investments too long even when no prospect of a turnaround is in sight. Investors feel more pain when losing a dollar, than they feel joy when making a dollar. They also often avoid taking decisive actions, because they fear that in hindsight, whatever course they select will prove less optimal. Being too timid in investment choices can cause investors to miss out on prosperous investment opportunities.
Status quo and endowment - Investors often tend to assign a greater value to investments that they own than potential investments. They may also feel hesitant to make changes to their portfolio, and prefer to keep things the same. Investors often attribute changing to negative volatility, thus keeping their portfolio unchanged makes them feel safe.
Cognitive biases
Anchoring - Many people often hold a number, such as the purchase price or any price, of a security as a benchmark to whether or not they should buy or sell. They may see a decline in value, yet refuse to sell the security until it comes back to the cost basis. This could potentially result in additional losses if the security continues to fall, which could have been avoided if the sale was made.
Mental Accounting - Investors may separate aspects of their portfolio into different segments, for which different levels of risk are granted. However, if an investor feels the need to keep their entire portfolio invested in extremely safe investments, they may only see paltry returns. Identifying these biases and working to overcome them, or eliminate them, may help to enhance a portfolio's outcome. Additionally, recognizing these obstacles will lead to better communication and a clearer understanding of the motivations behind investment decisions. As investment advisers to your portfolio, we are not immune from these biases but we use our professional experience to help overcome these hurdles. If you or anyone you know could benefit from our help in this area, please do not hesitate to contact us.
