How Actual Energy Use Relates to Investing in Energy (It's Not What You Think)

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In this clip from “The High Energy Show” on Motley Fool Live, recorded on May 31, Fool.com contributor Travis Hoium details what investors should consider when building a portfolio of oil and gas stocks. 

Travis Hoium: There’s a difference between the energy that we consume and the way that investments do. I just wanted to pull up. The great example on this happened much faster than I think we will see an oil and gas and then renewable energy as well. US coal consumption is down about 50 percent, maybe a little bit more than that over the last little over a decade. One of the reasons I didn’t compare this to coal stocks is the vast majority of coal stocks have gone bankrupt. [laughs] You could have said ten years ago, well, I think they’re still [OVERLAPPING].

Tyler Crowe: How many times did they go bankrupt? [laughs]

Travis Hoium: Yeah. I mean, you could have said 10 years ago, well, I think we’re still going to be using a lot of coal 10 years from now and you would’ve been correct. But if you would’ve invested in coal stocks on that thesis, that would have been a poor investment. That’s what I think is hard to gauge here is I think we’re all in agreement that we are going to be using a lot of oil and gas for the next 10, 20, 30, 40 years. The question is how much and how profitable will those companies be.

That’s what’s challenging in building this kind of basket is, if you want to be building for the future, how much do you want to be betting on oil and gas companies. One of the things that changed my mind about this is the way that they’ve invested over the last six months to a year. As prices have gone up, they’ve said, we’re not going to put more money into the ground because we’re just going to cash flow this. I think that’s something that coal companies did not do.