Buying Low Usually Pays Off for Patient Investors

Back in October 2006, my Commodity Trend Alert (CTA) plugged one of Russia’s largest oil companies amid a severe sell-off in Russian stocks. At the time, investors were growing increasing frustrated by Moscow’s interference with oil company profits. The Putin government was viewed as anti-shareholder friendly after nationalizing Rosneft and Yukos a few years earlier. Nobody wanted Russian oil and gas companies.

But upon researching this formidable company, I learned that its annual oil production was almost the same as Exxon-Mobil’s, yet the formers’ stock-market capitalization was about 85% less than the world’s largest oil concern. Something was definitely wrong with that picture.

That’s when I decided to start buying…

Including dividends, this large-cap behemoth has now gained a cumulative 35% following oil exploration tax incentives announced by the Russian government recently. Most of that gain has occurred over the last thirty days. Russia’s new government is now encouraging oil companies to explore as revelations among oil industry executives confirm the country is challenged by declining production as soaring costs pressure margins.

This year, as the majority of U.S. large-cap oil stocks struggle even with oil at $125 per barrel, this Russian giant has gained 27%. In fact, Russian oil and gas stocks rank as the top-performing energy companies in 2008 following two years of poor relative performance.

Contrarian investing is a difficult strategy. Going against the herd usually results in big profits – if you’re willing to buy when the consensus is bearish and prices are distressed. You also need patience. It’s an art that has been mastered over the years by legends like Jimmy Rogers who taught me in the early 1990s to buy when everyone else is selling and sell when everyone else is buying.

I’m now buying other bombed-out sectors, including solar energy, uranium, stock exchange operators and investment-grade corporate bonds.

Buy low, sell high. It pays – eventually.