In the comments section of a recent blog post one of my readers asked me to blog about any stock purchases I’ve made during the recent downturn.
On 3/12/2020 I made 2 purchases:
Chevron (CVX) – 268 shares @ $75.36 ($20,196.48 total investment).
Pretty much any company related to or involved in the oil industry has been crushed as a result of the plunge in oil prices. I have no doubt that the profits in the oil industry will be hurt in the next 1-3 years.
However, I don’t make my decisions based on the next 3 years. I make my investing decisions based on 5-10+ years.
And over the long term, Chevron is, in one of my opinion, one of the best-of-breed oil majors (Exxon being the other). With the recent decrease in prices, I think that Chevron is fairly valued.
I’m not really in love with the oil sector. I don’t like the fact that the primary product is a commodity. However, oil is an essential part of our economy and these companies pump out significant profits.
I am primarily using my oil stock investments to generate income that I use to fund other investments. Long term I’m not planning on adding much if any additional money to the sector.
Chevron was a company I already owned, but it was a fairly small investment. This brings the value up to approximately a 2/3rds position.
Wells Fargo (WFC) – 906 shares @ $27.64 ($25,045.80 total investment).
This is an investment I’m pretty excited about. The banking sector has gotten crushed in the last few days due to the “emergency” rate cut by the Fed.
Why would this affect banks? Lower interest rates hurt banks because they primarily make their money on the difference between the amount of interest they pay on deposits vs the amount of interest they charge on loans. As interest rates drop the spread tightens, which reduces banks’ profits.
In addition, a downturn in the economy would be few loans being originated, debtors could stop pay on existing loans, and less money would be deposited in banks. All of these would hurt banks’ profits.
However, banking as an industry has been around forever and isn’t going anywhere. Long term I expect that interest rates will rise and bank profits will soar when they do.
Conclusion
These two purchases used about 13% of our available cash. I am actively researching additional potential investments and I hope to deploy some more of our cash over the next few weeks.
If you’re interested, I’ve updated our portfolio tracker on the website. You can view it by going to “About -> The Money Commando Portfolio”.