Oil Woes

I've seen some real heartbreak stories on the bulletin boards and mailed to me regarding the huge markdowns in some of the Falkland Island oil shares.

Shares such as Desire Petroleum which halved on some not so great drilling news.

Stories included one guy who lost £70,000 and wailed: "Now how am I going to tell my wife?"

Another said he had his whole pension in Desire and was shocked to lose half of it. Many other stories about too of investors who have, at the moment anyway, done their money.

While I do have some sympathy for them, part of me is also unsympathetic.

First off they did'nt seem to realise that putting money into small oil exploration companies is a real gamble.

If they find good oil, fantastic, you make a mint. But if the oil isn't there or it's not good oil the shares will sink faster than the Titanic.

But above all the one thing that shocks me is this. So many investors put nearly EVERYTHING they had into one or two of these risky shares.

It's amazing really. I mean, would you go to a racecourse and put your life savings on a horse?

You've got to have a balanced portfolio to make consistent money on the markets.

Putting everything on small oil shares is simply asking for trouble. Remember a lot of "hope" is already in the prices of oil shares so any disappointments and shares do get hammered.

It's fine to have small oil shares and I sometimes do - but only to small amounts compared to the overall portfolio.

Indeed a small punt can be fun: but it should never be more than that.

It's even worse than people losing money they had. Many had these shares with spreadbetting firms on credit. Their positions would have been closed out, and a chilling phone call would have been made.

"Sorry, sir, your account is in debit by XXXXX, and we need the money now..."

Don't have the money? Too bad. See you in court. Watch out for the bailiffs.

Another point is what tends to happen after investors lose their shirt on any share, oil or not, is they hang onto them.

At seminars I run there are always many who hold portfolios with shares down by 50% or more.

I just think it's crazy - it's bad psychologically to start the day with a bunch of stinkers. Much better in my view to get rid of them and start from scratch. A hard thing to do - because there is nothing harder than crystallising a bad loss.

It's human nature to hold on to losers because you "haven't really taken the loss yet." But it is bad practice. After all, you can always buy back.

I don't advise people and I wouldn't personally know whether these Falkland shares will come back - they will if the oil is there, if not they will retreat further.

If it had happened to me, I'd have been gone.

But the main thing always is cliche though it is - never ever ever put all your eggs in one basket.

Otherwise get set for a very uncomfortable talk with your partner.