Why would you indirectly suggest owning a company oil stock over an ETF?Well this is a good comment as it brings up what really is a risk to worry about and what isn't, in terms of being realistic. Enron perpetrated a fraud, as did Worldcom. How many reasonably big companies (both of these were of course much larger than reasonably big) and larger are frauds that go to zero? We can define reasonably big as NYSE listed or NASDAQ listed. It happens so infrequently that it is statistically insignificant. There have been a few other companies that have failed for reasons other than fraud, this is also rare.
Have the memories of ENRON faded that quickly within the market?
I am purposely trying to get out of company stock and get into a commodity for a portion of my portfolio.
Further Enron was not an oil company it was a utility with a huge trading operation.
This may seem cold but worrying about statistically insignificant events, where investing is concerned, makes very little sense to me. If you have 3% of your portfolio in the next major fraud you will end up having a bad day and might set your portfolio back a couple of months. This is not a ruinous outcome.
The reader says he is seeking out a commodity product for this part of his portfolio. Over the last three months USO and OIL had standard deviations of 27.5 and 27.3 respectively. In that same time BP had a standard deviation of 18.2, XOM 19.6, Chevron 19.4, Total 17.8 and the Energy Sector SPDR (XLE), which might be the least compelling energy ETF out there, comes in at 20.5.
Individual stocks are not right for every one and trading a commodity ETF is a valid way to go for people that want to assume that kind of action but the logic of picking a very volatile commodity ETF over a stock for fear of fraud is lost on me.
An update; I disclosed buying the Currency Harvest ETF (DBV), aka the carry trade fund, back in October. I feel like it is living up to its billing of capturing most of the market with less volatility. Over the last three months SPY has a volatility of 7.07 and DBV is 6.14. In that same time SPY is up 4% while DBV is up 3%. While that is fine I think it is too early to know for sure that it is a success.
For now I have no intention of putting client money into this. I prefer the single currency ETFs, they are simpler and have provided a better return.
On a more positive note I am scheduled to do a podcast-like interview with WallStreet.net. I've done this many times before. The show is hosted by Bobby Illich and my counterpart this go around will be Jonathan Hoenig from Cashin' In. I'm looking forward to it.