In my last year as a broker (2003), we were encouraged to put a portion of our clients assets in hedge funds. As I looked at these unregulated businesses, I decided to ignore the advice. The best advice I've ever received is "invest in what you know." I have followed this advice for more than 20 years and i have never been disappointed.
In recent days we have heard news about the hedge fund, Amaranth Advisors LLC, announcing "It Lost $4.6 Billion" due to a huge bet it made on natural gas.
Remember last fall when everyone on TV was screaming for you to invest natural gas? That was not the time to be buying. Now that hedge funds are un-winding their positions, this is the time to be buying.
This chart shows that the Wall Street Gang was encouraging you to buy natural gas in the fall of 2005, which happened to be the peak.- See Chart
The October contract for natural gas is currently quoted at 5.07. The forward contracts going into the winter look like this;
Nov 06= 6.34
Dec 06= 7.975
Jan 07= 8.55
This is not saying that an unusually warm winter will not drive prices lower, but current prices look like a decent entry point.
My favorite stock for natural gas continues to be Chesapeake Energy (CHK).
I am going to add another gas play to the IA portfolio; BG Group PLC (BRG)
BG Group PLC (BRG): Is a U.K. company that specializes in liquefying natural gas. There is no doubt that the push for LNG and LNG terminals is huge. BRG is a broadly diversified company that not only specializes in LNG, but Exploration and Production, Transmission & Distribution, and Power Generation as well. We will set a tight buy limit of $63.00 on the stock.
