Oil and Gas As A Secondary Investment

Christian is considering investing in oil and gas as a secondary investment, but he wants to know how Dave feels about doing this.

QUESTION: Christian in Texas is considering investing in oil and gas as a secondary investment, but he wants to know how Dave feels about doing this. Dave talks about the risk involved and offers his thoughts on the subject.

ANSWER: You certainly know a whole lot more about that than I do in terms of the probabilities of a hit and that kind of thing. I’ve been to your area several times, and I know that if you’re doing business in that town, you know a whole lot more about this than I do. My perception from the outside would be that I would categorize this.

Let me tell you this. If you were a 70-year-old lady calling me from Minnesota who had a guy trying to sell her a well in Texas, I would tell her to run. And you know all the reasons why. But you’re in a different world. This is your business. It’s what you do.

I don’t tell people to invest in art. Collectibles as a category don’t do well. Your category is a high risk category. But if someone is an art dealer, well, they probably ought to buy some art because they know what they’re getting into. They’re going to get good buys and shave the corners off the risk of that and thereby make a whole lot more.

If I were in your shoes, given your unique expertise, I would call this more like a single stock investment. I don’t buy single stocks, but I tell people if you’ve got a single stock investment that you’re just dying to do and you really know something about that particular company and there’s a real reason you want to get in that, that’s fine. Go ahead and do it. But don’t do it in a way that breaks the bank if it goes poorly. No more than 10% of your net worth ought to be in oil and gas. That gives you a little play money to fool with a couple of wells, and you have a clue what you’re doing. But I don’t want the vast majority of your net worth tied up in something that is—even for the experts—fairly risky.