Playing the Shale Craze

 | Oct 21, 2013 | 11:15 AM EDT
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I'm looking for help from readers this morning. We need to talk about the shale-play craze and how you feel most comfortable playing it because maybe I've been too interested in how I like to trade stocks. I'm talking about specific stocks here: Hess (HES), Devon Energy (DVN), Pioneer Natural Resources (PXD), Cimarex (XEC), EOG Resources (EOG) and maybe even some smaller players.

I've tried to direct readers toward stocks that fit me -- the medium to long-term plays that I believe I can hold for at least a year or more. I love to find and buy value in the patch and hold until it's no longer considered value. That's how I play it and I recommend you do, too.

But I also find that many of you like the quick-hit play, something I'm extremely comfortable with when I trade commodities but far less comfy doing with stocks. It's been that kind of trading (really, investing) attitude that's kept me away from recommending the high-fliers and sticking with the slower, steadier movers. Now I have to ask: Is that working for you?

That "value" search led me in August to recommend Cimarex over Pioneer Natural Resources for a Wolfcamp shale play, and to be coming out of the stock now at $110 after recommending it at $80. Thanks, but if you give me a 35% return in two months, I'll likely take the money and search again for value elsewhere. It's also had me miss the big move in Pioneer, near $100 at the start of the year and now scraping $225. It's kept me mostly out of the refiners, which can rotate up or down by more than 20% in a few weeks based on fluid margin changes.

Has this trading philosophy lost me money over the decades? Sure, perhaps it has left me without maximizing profit, but it has also kept me in the game. Along with missing some upside on great picks, I've also managed to miss all the downside on momentum monsters when the bloom came off the rose. It is ugly when a momentum stock turns south for the first time, to which long-term Apple (AAPL), Netflix (NFLX) and Facebook (FB) shareholders can attest.

So, I tend to give you names like Hess in the Bakken instead of Continental Resources (CLR), EOG or Anadarko (APC) in the Eagle Ford, or Devon in the Permian. And I pray that the potential reserves touted there are even a fifth as much as what's being priced into stocks like Pioneer.

And I tend to stay away from the small wildcatters that clearly could be sitting on a gusher and a five-bagger swing, or could be sitting on dry holes that will take your investment down into the sand.

Tell me: Would you like more passes at the dice? Are you looking for the three-week wonder that could also lose half of your investment just as easily? We can do that.

Please let me know what you think; after all, I work for you.

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