Crude Oil Prices

Six months ago the Brent crude oil price was about $110/barrel and the WTI (West Texas Intermediate) price was about $100/barrel.  The current prices are about $60 and $55 respectively.  So the price has fallen dramatically and unexpectedly.  As I have mentioned before I believe oil prices are likely to generally rise over time as the earth's supply is exhausted (peak oil).  The recent price action doesn't totally contradict this as there was no reason to believe the rise would be smooth and monotonic.  Because both oil supply and demand react slowly to price changes small mismatches between production and consumption can cause wild price swings.  Still the recent price action is at least a reminder that in investing being right in the long run doesn't mean you can't lose a lot in the short run.  

Given that one still expects rising crude oil prices in the long run what is an appropriate investment strategy at this point?  It is tempting to look for bargains among the oil stocks which have fallen the most.  But this is in effect a bet that crude oil prices will recover before the highly leveraged companies in question go bankrupt (as a stock which is going to zero is never cheap along the way). So this is not an appropriate way of investing based on a long run view.  It is better to look at those companies that are most likely to be around for the long run.  However such companies are currently only cheap relative to the market as a whole.  I bought some ExxonMobil (XOM)  and some ConocoPhillips (COP) a couple of years ago and while their stock prices have fallen substantially in recent months they are still above my basis (while the market as a whole is up about 50%).  So I don't see a compelling reason to add to my positions.  Perhaps this will change over time if the crude oil price remains depressed.

Fact Checking

Recently New York Magazine published an amazing story about a Stuyvesant High School student who had purportedly  made $72 million in the stock market.  When I read it I was pretty sure it was nonsense as in fact it soon turned out to be.  As the magazine admits its fact checking was obviously inadequate.  I expect this was caused in part by a failure to realize just how unlikely this story was and the implications for the appropriate level of fact checking.   Suppose for example that there are a million false claims like this for every true account.  Then fact checking sufficient to catch 99.9% of the false claims is totally inadequate as 99.9% of the surviving claims will still be false.   As the saying goes "Extraordinary claims require extraordinary evidence".

New York Magazine stated:

... As part of the research process, the magazine sent a fact-checker to Stuyvesant, where Islam produced a document that appeared to be a Chase bank statement attesting to an eight-figure bank account. ...

But this is very ordinary fact checking.  Anybody can fake a bank statement.  The whole point of a bank reference is that you can verify it with the bank.  If New York Magazine had insisted on doing this they would likely have avoided this fiasco.

Rape Fantasies

Last month Rolling Stone published a story about rape on college campuses which began with a lurid account of a University of Virginia coed being gang raped at a frat party.  Doubts were raised almost immediately about whether this account was accurate and as I write this Rolling Stone is not standing behind their reporting.  I didn't read the story before it was discredited but in hindsight it does read like something Stephen Glass (famous for inventing a whole series of stories for the New Republic catering to liberal biases) would have come up with.  Which means Rolling Stone should been wary and extra careful with their fact checking.  Which they do not appear to have been.

Some people find it hard to imagine a woman inventing a story like this.  I don't.  It is fairly common for men who have never been in combat (or in some cases even in the military) to invent stories about their horrific combat experiences (and the post traumatic stress which continues to affect them).   The motive of course being to attract the attention and/or sympathy that such stories naturally elicit (when believed).  I don't find it hard to believe that some women would invent rape stories for similar reasons.  And because rape accusations are fairly rare it doesn't take a large proportion of such women among the general population to make false rape accusations a significant fraction of all rape accusations.

As for Rolling Stone I suspect the problem is that among their staff it is generally believed that only "bad" people would ever question a woman's account of being raped.  This makes it hard for normal journalistic skepticism and fact checking procedures to operate properly.  If actually hiring a more ideologically diverse staff is too horrible for Rolling Stone to contemplate perhaps for each story they should designate a devil's advocate to bring up the objections that people are suppressing for fear of being thought sexist pigs (or whatever depending on the story).  This advice of course applies to any institution where there is a danger of legitimate questions being suppressed because of pressure to conform to a party line.