Thursday, May 29, 2008

* Are Transportation Costs Getting You Down?

There once were twin boys that were very different. One had a positive outlook on life while the other was negative about anything he encountered. At age 5 the parents took the boys to see a psychologist to try and understand how twins could be so different. After several sessions the psychologist tried to "cure" both boys. He placed the negative boy in a well-lit room full of candy, pastries, toys and anything else a 5 year old boy could ever want. The positive boy was placed in a dark room full of rancid horse manure.

After about 4 hours the psychologist told the parents he was certain the boys had been cured and they all went to check on them. Not having touched anything in the room, the negative boy was was still sitting where he was left crying and unhappy. Disappointed the psychologist led the parents toward the room where the positive boy was. As they approached the room, they heard a flop, flop, flop sound. They peered through the window in the door and saw horse manure on the walls and on the ceiling. The boy was in the midst of the manure digging as fast as he could. The parents opened the door and asked what he was doing? The boy replied, "With this much poop, I just know there must be a pony in this room and I'm going to find it!"

The increasing costs of transportation has affected all of our lives to one degree or another. Individually, there is nothing we can do about the price of fuel. But like the positive boy above is there something we can do to make the best of a bad situation? I will leave the conservation tips to those more qualified to speak on them.

For several years I have been trying to add an energy stock to my income portfolio. I have some value friends that bought Exxon Mobil (XOM) and Chevron (CVX) about three years ago. They have done well. CVX is up about 80% while XOM is up about 60%. From an income perspective, I couldn't make the numbers work then and the stocks have only become more expensive. Energy stocks can be emotional which leads to volatility.

From mid to late March energy stocks pulled back some. I ran my analysis on XOM and CVX, but still couldn't make the numbers work. On a whim I ran the analysis on BP, and to my surprise they worked. I purchased BP on April 2nd at $62.19/share. At the time of purchase it had a 5.17% yield.

Granted BP is not quite as blue-chip as XOM and CVX, but it gave me the entry into the energy sector that I was looking for at an astounding yield. Since that time BP share price has risen about 15-20% as oil prices have escalated and has out-performed both CVX and XOM. Granted, I got to the party late, but I was able to come on my own terms without having to compromise my standards.

What now? I am sure there is another pony in the rancid fuel crisis, and I am going to find it!

At the time of this writing, I owned shares of BP (1.6% of my income portfolio).

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