I am a big believer in the “teach a man to fish” principle and not just when it comes to charitable endeavors. My role here at Oilprice.com is to help you to profit from the opportunities present in the energy markets and, while individual recommendations are a part of that, in the long term understanding how an idea is formed is often more useful than what that idea is per se.
I am lucky enough to spend my time researching markets and individual companies and, over time, I have found that often the ideas that you stumble on as you research a central theme pan out better than the original idea. I have a theory as to why that is so. We all like to think that we analyze empirical data in a dispassionate way and arrive at a logical conclusion, but in reality we usually start with a preconception. In the modern age of information overload it is easy to find data and arguments that support your original hypothesis and there is a tendency to focus on those. Psychologists have a term for it; they call it confirmation bias. By definition, when the data and research you use to confirm your original opinion suggests another idea, you have arrived at that one without any preconceptions. Little wonder, then, that the secondary idea often works out better
This happened today as I prepared to write this piece. Continental Resources (CLR), a US oil exploration and production company with a focus on the Bakken field has been in the news a little this week and I started to do research for a positive piece on the stock. CLR has had an excellent year (+41%), but has fallen over the last couple of days as crude prices have stalled and questions have been raised about the longevity of the Bakken reserves.
These questions came about because the production per well in the area has begun to decline (down 11% year on year according to the latest figures from the North Dakota Industrial Commission Department of mineral resources.) Overall, production for the area is still rising fast, however, as new wells are being drilled, and I am more inclined to the view of CLR President Rick Bott that there are decades of growth left for companies heavily invested in the North Dakota boom. This is especially true given that the technology being used in extraction is relatively new and continues to advance. With that in mind, I set about writing a piece on how any weakness in CLR represented an opportunity to buy the stock relatively cheaply.