How to Invest in an Oil Stock
The world seems to run on oil as world conflicts continue to rage over this precious commodity. With dwindling oil supplies, there is no mystery that oil is so valuable, but there is much debate over when and where oil will reach its peak. The truth is, oil keeps moving all the time, and while this black gold is not as steady an investment as yellow gold, it is still worth the ride! The only question left is which oil stock to choose.
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Instructions
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List oil stocks you have heard about on the news and from financial sites. Put them in categories of low to high risk. Do some research on the companies that interest you.
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Rate oil stocks according to risk. You can arrange them in triangle formation, with the bulk of your money invested in major companies that are perceived as stable, such as Exxon, and less money devoted to out-of-favor companies with upside potential and speculative oil plays.
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Look at production costs. Some oil companies use cutting-edge technology to produce oil. Lower costs can mean higher profits, but there are other factors to consider.
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Take leverage into account. Low production costs may not be so significant if a company lacks leverage or an ability to maximize resources. This is the advantage larger companies have over smaller operations.
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Consider reserves. Oil reserves or untapped resources are like money in the bank. If you plan to speculate on an oil company, see if it has significant reserves that may offset other risk factors.
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Stay informed. Political turmoil in a given country can wipe out your investment gains overnight. This is especially true of oil, so be prepared to get out fast, if necessary.
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Use a screener. On many financial sites, you can use a screener, which will help you find the best oil stock. While this service is rarely free, it is worth the investment, especially if you are a new investor.
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Tips & Warnings
Keep an eye on your stock. Do research on your holdings every week and think about improvements. Feel free to make trades in another oil name if you feel it is necessary.
Sell a little off the top when your oil stock makes a big gain. Greed is not good. Cash in and live to invest another day.
