Published by US Emerald Energy on January 15, 2016
When you first set out to learn how to invest in oil, there’s a temptation to jump straight to specific strategies; the fine details of making the most money possible—but that’s not where your education needs to start. In any field, making the best investments possible comes down to a set of foundational skills applied in specific ways; if you fail to develop your foundation, and it doesn’t matter how much specific knowledge you have at hand. So let’s talk about those foundational understandings that make for sound investors:
Researching the leadership
Much of what you’ll want to know about the quality of any investment can be deciphered from a good look at who is calling the shots and guiding the effort to turn your money into more money. That makes the ability to research executives and other shot-callers within an organization you’re going to invest in a primary foundational skill, lest you put your money on proven failures, shady figures, or the varyingly inexperienced.
You can’t necessarily determine everything there is to know about the people calling the shots from publicly available sources, but you should train yourself to find out who you should look into, and find what’s out there about them.
The people you talk to about your potential investment in an energy project should be knowledgeable and be ready to answer any questions you might have. A lack of knowledge and hesitance about sharing details important to your decision are major red flags.
That’s not to say that the agent you’re speaking with needs to know every single detail across the company—it’s not necessarily a bad sign if your research has made you more knowledgeable about a particular aspect of the project, such as equipment, than the person you’re communicating with. But they should be eager to find out the answers to your questions and get back to you: confidence and transparency go hand-in-hand.
Avoiding jargon traps
To make the most of your efforts to invest in oil, you’ll want to familiarize yourself with the jargon, that way, it won’t hold sway over you. It’s quite easy for someone with a grasp of all the terminology to mask a bad deal, so you’ll want to make that terminology one of your first steps on the path to investing. It can be boring, and a lot to take in, but the knowledge will pay off big time in the long term.
That said, you can always take your time and get the representative to lay things out to you in more familiar terms—it just takes longer, and might betray your unfamiliarity with the process to less scrupulous firms.
Knowing the scams
Scams don’t work when you’re familiar with them in advance. A pyramid scheme sounds great, unless you think ‘Wait, this is a pyramid scheme’. So take the time to read up on the scams common to investing in general and oil investing specifically, to protect yourself.
As a more general protection against unscrupulous agents, make sure you look askance at anything that sounds too good to be true, and run for the hills if someone starts promising you big returns on anything of dubious legality. Most scams rely upon you doing something unethical, immoral, or simply without giving much thought to your actions–so sticking to ethical, well-researched investments is a must, even from an angle of pure self-interest.
Investing, not gambling
If you’re researching how to invest in oil from step one, don’t just straight into high risk/high return investments just yet. There are ways to hedge against losses and come out a consistent winner even on that sort of investment, but it requires highly advanced knowledge and experience. As a beginner, you want to stick to more reliable investments.
If you have to view investing as a gamble, then you want to start with ‘blackjack’ type investments. You can move up to poker later—and you’ll want to stay away from the roulette wheel entirely.
Understanding all of your options
There are a lot of ways to invest in oil. You don’t need to know all of them to turn a profit on oil investments, but you probably should all the same, just so you get a better grasp of the interplay of risk and reward across different approaches to energy. Broadening your understanding of your options will help refine your understanding of specific options; decisions made in a vacuum aren’t worth nearly as much at the end of the day as informed, cautious decisions.
Keeping up with the situation
Learn how to keep up with news that might impact your investments. Old media, new media and social media can all add up to a network of information that gives you advanced insight into what you can expect from different types of investments—and help you stay on your toes as you move your money around for maximum profits.
Don’t be the type of investor who does their research once, then doesn’t bother past that point—even in investment types where you’re not going to move your money, staying informed is going to be in your best interests for long-term gains.
Spotting worrisome details
We’ve talked about looking into leadership, but the profit of an investment depends upon countless other factors as well—so learn to look at the small details and find out whether they’re good or bad. That might mean doing your homework on oil well technology so you can spot a company that works with unreliable equipment. It might mean keeping an eye out for signs of troubles that aren’t oil-related at all, such as news stories revealing a bad relationship with locals around wells. Little problems can add up to big losses, so stay mindful of the details.