Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

On Natural Gas Investing…

Most of us know that the investing game has changed in the last few years. Assets that were once considered very stable are now viewed as carrying a higher level of volatility than in years past. That doesn’t mean we can’t find investments that have the right combination of growth potential and risk level, if we take the time to do some investigation. When it comes to investing in natural gas, it is important to know the past performance, how things stand in the present, and use that data to make informed projections of what will come to pass.

Natural Gas Investing

Public Domain Image: Public Domain

Background on Investment in Natural Gas

Like most investment opportunities, natural gas has its ups and downs. In comparison to other types of assets, gas futures have a history of remaining fairly stable in most types of economic situations. For the most part, it isn’t a matter of losing money on natural gas holdings, although there have been times in the past when the returns weren’t the best. Taking some time analyze how the price of the asset has increased, hit a plateau and periodically dropped makes it easier to understand what to expect when purchasing gas futures.

What is Happening Now?

A solid understanding of natural gas prices in the past will make it easier to understand why those prices are at certain levels today. For example, most of us who follow the journey of natural gas versus oil know that for many years the two investments followed a similar pattern, with both rising and falling at the same time. Since the first couple years of the 21st century, natural gas prices have tended to remain somewhat stale while oil prices increased. It is important to note that there are no reasons to think that trend is going to change any time soon. What we are likely to see is a widening of the gap between the prices of oil and natural gas, and not any immediate upward shift in natural gas prices.

How About the Future?

While it is always important to understand what has happened with an investment in the past, it is also important to project where it is going in the future. Rising oil costs have some people thinking that now is the time to invest in natural gas. Before making that move, it is important to remember that unlike decades past, the movement of oil and natural gas prices have not dovetailed in a number of years. In fact, the cost of mining natural gas in years past was somewhat prohibitive and tended to prevent those futures from yielding much in the way of a return.

One possible strategy is to not focus directly on natural gas itself, but to turn attention to investments in companies that have developed new technology for mining the gas. Those technologies have helped to reduce the expense of mining, making the manufacturers of those technologies relatively hot properties. It is conceivable that we could buy shares in those companies and hold them for a year or two, ultimately selling them at a significant profit.

Where Does This Leave Me?

Allocating a small percentage of the portfolio to natural gas futures is not a bad idea. The key is to not overdo it. There are a number of factors that may come into play over the next several years and have some effect on natural gas prices. As other options such as solar energy and hybrid vehicles become more popular, there is also the chance that the market for natural gas will begin to increase. Since newer technology is making it more cost effective to mine natural gas, these circumstances could combine to generate a reasonable return down the road. In the interim, focus more attention on companies like Baker Hughes or Schlumberger Limited that either make the mining equipment or manage the mining process. Monitor the movement of their stocks closely. Doing so will make it easier to know how long to hold onto the shares and when to let them go and prevent incurring some type of loss.

VestaTrader is a social trading platform where users can learn daily trading cues from each other, VestaTrader and other trading experts.

From The VestaTrader Blogpost On Natural Gas Investing…

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.