Empty Holes and Black Swans, Part II – Simmons interview

BC: OK, depending on the country, there were a huge amount of paper increases in apparent reserves. What are your thoughts on Saudi Arabia and what’s going on in the Middle East?

MS: Well, I can tell you an awful lot of anecdotes that I’ve heard. It’s been two years since “Twilight in the Desert” came out, and I have so much more information that I’ve been able to gather in feedback from people within Saudi Aramco who, I’m told, learned an awful lot by quietly, secretly reading the book, which is sort of…
[…]

MS: Our firm has daily recommendations, and I basically stay totally out of that. I tend to buy a stock and then hold it for five or ten years, unless I think that I’ve made a mistake. And I tend to think more about which sectors to avoid or be interested in to look at.

One of the things that really amazes me about the stock market and their love/hate relationship with energy is that of the current weighting of institutional investors in the market, the S&P weighting of energy is about 9%. Institutional ownership comprises about half of that. What’s interesting is that about two-thirds of the ownership is in the major oil companies, which is the one group that I would avoid like the plague. So the market is invested in the wrong area – the major oil companies.

BC: They haven’t been able to keep up their reserves.

MS: Yeah, and they can’t. Their decline rates are so high and they operate such old, mature basins that they can’t drill enough wells, and they don’t have places to drill wells, and they don’t have a sustainable strategy. So, in that respect, the oil service companies are the savior of all the problems.

Howe Street