March 30, 2017 0 Comments Other Categories

Oilfield Lesson In Economics 

You always hear of people hoping a market crashes, in belief of overvaluation, just a desire to acquire assets at more desirable prices and hence greater returns, or just personal bitterness at one’s own financial situation.
When the whole industry suffers, economic opportunities dry up, so it becomes harder to make money. Wages go down, work becomes more scarce, liquid assets drop in value- all reducing buying power. For instance, with the work we do, recession wages have on average, become 20-25% lower, and many have simply had theirs reduced to EI cheques. The problem is without taking on a lot of risk, many attractive investment opportunities have not declined by a similar amount to be consistent. So in real terms, they have actually become even more expensive. Argueably you could have used cash savings to jump on oppertunites, but CAD has plummeted since the recession started, and cash loses value overtime in general.
For those who rely on investors’ money to grow their assets, this becomes a even bigger issue, as the average investor falls victim to popular negative investor psychology. Often, they will be much more risk averse, so raising capital becomes either much more expensive, or impossible in some scenarios.
Now when the market is doing well, people have too much money and risk aversion declines. With a combination of cheap debt, investor confidence, and business confidence- the dogs pour in by the masses, increasing asset demand, hence initial asset prices. So though you’ll have more money and experience greater returns at first glance, you will have to get in at higher prices, resulting in dampened returns. Therefore, now you are again at square one. The only difference is you have less people bitching about you taking too much risk because the economy is going down the shitter.
The oilfield is a prime example of why you can’t beat the market. So, just do your thing and quit worrying about what happens regularly. And if someone tells you to be especially risk adverse, or don’t do this or don’t do that because you will fail, either because the market is doing very well, or very bad, tell such someone to fuck him/herself. The best investors are not the smart ones, but the ones who are not pussies.