John Maynard Keynes is one of the most influential and controversial economists in history.
He warned of the huge burden war reparations placed on Germany and its allies after WW I. He played an integral role in establishing the post-WW II financial world. His economic theories established the impetus for governments to spend like mad during downturns. He made, lost, and made back a massive fortune in the stock market. He counted Pablo Picasso and Virginia Wolf as friends.
He’s done a lot. His impact on the world is extensive. But today we’ll look at one of his truly lasting legacies. And the invaluable lesson it teaches us about investing. It’s something so many investors fail to ever learn.
You see, Keynes was prone to change his mind. He was often openly accused of being inconsistent. Had he ever ran for political office, he surely would have been called a “flip-flopper.”
One day he was approached about his repeated inconsistencies. His simple response was, “When the facts change, I change my mind. What do you do, sir?”
The Facts are Changing
It’s a bit of simple wisdom most investors so often forget. An investor who refuses to change when the facts change will lose out big. Just think of anyone you know who rode oil stocks all the way down to current levels. The were citing peak oil theory or the $60 per barrel cost of production of the 85th millionth barrel per day all the way down. Or agriculture sector stocks. Or shares in pretty much any sector - now that I think about it.
When the facts change, you’ve got to change with them.
Right now, the facts are changing – fast.
Now, at the Prosperity Dispatch, we’ve been pretty much spot on when it comes to oil over the past few months. With the exception of OPEC managing to stick together (which will last over the short-term, but has never held out over long periods of low oil prices) we’ve watched from the sidelines as oil prices plummeted and oil stocks got crushed.
We’ve focused on both the supply and demand side of the equation. Which, when taken in tandem, still paints a pretty ugly picture for oil over the short-term. The state of the U.S. economy and mounting problems in emerging markets, isn’t going to spark a quick rebound in oil demand. And swelling oil supplies sitting round in tankers will be there to be sold into any rally in oil prices.
Those are were the facts.
Change Oil Execs Don’t Want to Believe In
President Obama’s budget proposal is changing everything. We’ve already been over some of the changes coming to the healthcare sector and the impact on stocks in the sector (medical insurer Humana (NYSE:HUM) is down 30% since the healthcare system changes were announced).
Now “Change we can believe in” is heading for the energy industry.
The budget proposal Obama submitted reveals a lot about who the winners and losers will be. One of the big losers will be oil companies. According to the Houston Chronicle, “President Obama proposed a $31.5?billion tax increase on oil and gas producers.” Clearly, he has his sights aimed squarely at the “wealthy” (which still isn’t a crime – yet!) oil industry.
It’s not an upfront tax though.
