Energy Rising

This article discusses the possible arrival of peak oil and how it factors into our investment strategy.

The concept of peak oil is decades-old and often misunderstood. It doesn't hold that we will run out of oil but simply, there will come a time when our production levels plateau and then decline. We will never run out of oil but rather, will not be able to produce as much as in preceding years. This is a gross simplification of peak oil.

I encountered this theory a few years before I had any notion of investing. Like many Americans, I gave no thought to the workings of our energy system, which lies at the very heart of our economy. As I learned more about oil and the energy infrastructure, I quickly realized the sickening implications for our way of life if peak oil theorists are correct. Unfortunately, as hard as I tried to dispel the doom-and-gloom crowd, they have the data on their side.

I imagine every person who comes to accept the validity of peak oil goes through some freak-out process. In my case, I made plans to learn farming skills. A friend bought a gun and packed it in a survival backpack filled with supplies, batteries, flashlight, etc. Eventually, we got back to our daily lives, buttressed by the reality that the ramifications of peak oil will unfold in a long, gradual process -- there was no use wasting the time we had until then. I went back to rabble-rousing political campaigning and he went back to selling pot and chasing girls.

Sometime in 2005, I came across a book by Stephen Leeb titled "The Coming Economic Collapse: How You Can Thrive When Oil Costs $200 a Barrel." I'd read many books on peak oil by that point but not one discussed how to profit from it. Obviously, I read the book. I'll probably write a review for the website when I get a chance to reread it but until then, my short take on the book:

* The first third of the book was condescending, vapid and irritating. I wasn't even going to finish it and, instead, return it for a refund. I'm a guy who reads the back of a cereal box so not finishing a book is rare.

* The second third, where he sets the economic scene for peak oil, was much better and convinced me to at least finish the book before I returned it for a refund.

* The last third was so superb, I kept the book and wound up subscribing to his newsletter (which was also good for a time but deteriorated to the point where I cancelled). In the last part of the book, Leeb lays out investment strategies (including individual stock picks) and for a neophyte like myself (at the time, I had never owned stock), extremely helpful.

Eventually, the idea of teaching myself how to fish (learning how to invest) overtook the idea being given fish (newsletters + books) and I took control of the investing process.

Now with that background out of the way, let's explore the concept of peak oil (I prefer to call it energy scarcity) as it factors into our investment strategy.

The Enlightened American

Energy Rising