There is an overused expression in investing that simply states “timing is everything”. On that basis, therefore, should I assume that I have now missed the boat in terms of adding Shell (LSE: SHEL) shares to my portfolio? Its impressive quarterly results were released last week, and the price of the stock has consequently risen without me as a participant.
This is typical of the types of emotions that accompany any investment decision, and it is imperative that I recognise it as such. But once viewed dispassionately, Shell shares appear to me to be just as attractive today as they were a month (or more) ago.
Remove the emotions, focus on the facts
The oil and gas sector is in a bull market. This statement itself appears counterintuitive. Are we not conditioned to believe that “dirty” energy is in decline and petroleum companies are old-school? Surely the next big investment play is in green energy and renewables?
Possibly, but price charts and corporate results tend not to lie. Yesterday’s results from BP are further evidence of this. The sector is thriving, providing both significant capital gains and market-beating income returns to investors.
I still need to remind myself of potential pitfalls
While it may be easy to focus on the favourable fundamentals, I am aware that the very success of Shell is likely to bring it front and centre to the attention of governments looking to plug holes in their budgets. Talks of windfall taxes are by no means limited to the UK. Similar debates are being held in countries that include Germany, the Netherlands, and North America.
Additionally, companies such as Shell face ongoing challenges in the environmental and geopolitical arena such as when and where to drill.
Sentiment towards the sector appears to be at an all-time low.
And there lies the opportunity for continued growth
All these headwinds add up to one thing: a lack of supply. Even before the invasion of Ukraine, declining investment — driven in part by ESG (Environmental, Social and Governance) mandates — ensured that new sources of oil and gas were not coming online.
So, even when considering a future decline in economic activity, I believe supply will continue to fall short. To me, this simply means higher prices and consequently higher profits for shareholders.
Timing the market is over-rated
As an investor I have been conditioned to “buy low, sell high”; something I have found to be almost impossible to do consistently. Instead, what I really want to do is “buy high, sell higher”. That seems more achievable and hence more profitable. Critically, it reduces the emotional factors and forces me to be more objective when making investment decisions.
I have even conditioned myself to believe it was prudent to wait for Shell’s earnings report to come out before buying.
Michael Hawkins has a position in BP. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2022