A Great Way to Fight High Gas Prices (and Use Them to Your Advantage)
Before I begin I want to issue this DISCLAIMER:
I am not a stock broker or any kind of stock market expert. My
specialty is real estate. This is just some information I found that I
thought might help out the readers of my blog.
Have you seen gas prices lately? It’s absolute madness at the pump right now. You’re probably thinking there’s nothing you can do, but I’m here to tell you that you can at least offset your losses with a simple strategy and earn back the money you’re losing on gas.
I discovered this strategy in 2007 when gas prices first started to get completely out of control. In 2007 the price of gas from January 1 to December 31 increased by 39 percent. Prices went down during the recession but in 2012 gas prices are through the roof again and it doesn’t look like that’s going to change any time soon.
If we look at what we learned when gas prices spiked in 2007, we can make some assumptions about the future. The average American drives around 12,000 miles per year and the average vehicle gets about 23 miles per gallon. Using those numbers, the average person in the US buys 522 gallons of gas. That’s a lot of money to be spending every year on gas (about a $444 increase from January to December for the average American). But you can make up the money you’re giving to the oil companies through one simple step – investing.
Investing in oil can just about make up for all the money you’re losing at the pump if you know where to put your money. In fact, you could even make money.
It seems too simple to really work, but I’ve done the research. There’s a fact about oil that not too many people know. A couple years ago we used half of the world’s supply of fossil fuels. Fossil fuels are where we get oil, coal and natural gas. Those supplies took hundreds of thousands to millions of years to create from the bodies of dead animals (which is why they’re called fossil fuels) and once they’re gone, they’re gone.
That means that supply is not going to go up…ever. Demand, on the other hand, is going up. Even with the US and Europe using less fossil fuels, other countries like Brazil, China and India are using more. World energy consumption is growing about 2.3 percent per year.
In 2007 while gas was up 39 percent there were a few stocks that also jumped about 40 percent and it’s no coincidence that they were oil stocks. The Powershare DB Oil Fund (DBO on the stock market) jumped 42 percent in 2007. That’s the fund that tracks crude oil exploration. It started the year selling at around $23 a share and finished at almost $35. Right now it’s selling for around $30 a share.
Another investment fund that performed well was Powershares Dynamic Oil Services Portfolio (PXJ), which tracks oil companies. It jumped from around $20 a share to $28 a share by the end of the year. Right now it's selling close to $20 a share.
SPDR S&P Oil & Gas Equipment & Services (XES) and SPDR S&P Oil & Gas Exploration & Production (XOP) both saw increases of more than 35 percent.
It’s not an exact science, but the Dow Jones Industrial average in 2007 looked a lot like the Dow Jones Industrial average in 2012. In fact, just recently the Dow hit the highest level since 2007.
If we see an increase in the stock prices of these stocks in 2012 like we saw in 2007, we could expect to see a 40 percent increase in price, which would offset the big increase in prices we’re probably going to see at the pump very soon.
Since gas prices show no signs of coming back down to earth, why not try to help yourself out by investing in oil and the oil companies that are cashing in anyway.
If history repeats itself, as it often does, you could see a pretty good return on an investment. Let’s say you drive the average amount and you have an average car, you would be spending about $1,700 this year on gas. If you invest that same amount in one of these stocks, you could potentially make up the extra money you’re losing at the gas pump in stock increases.
Estate Mike is host of the syndicated radio show, “Let’s Talk Real
Estate with Mike Andrews.” He is a published author, real estate expert,
entrepreneur and investment advisor. Follow him on Twitter