Show Me The Money: The Power Of Investing In Energy
0:00 Welcome back everyone to another episode of energy 101. Today we have Sean Mahr from third gear investment. Do I say that right? You did. Okay, good. Um, do you want to tell us a little bit
0:12 about yourself? Sure. Yeah. Uh, so I am, uh, native New Yorker. I moved to Houston in 2001 for energy. Uh, I did energy investment banking and Morgan Stanley moved to Houston. Thought I'd be
0:27 here two years. Realize that it's pretty nice down here Yeah. Um, and then I married an Aggie and, uh, so I'm not going anywhere. Twenty-two years later. Twenty-two years later. Uh, but, uh,
0:38 I worked at Morgan Stanley until about 2008 and then, uh, work for, uh, energy, um, boutique, energy investment boutique. Um, earlier this year, I decided to resign and move on to do with
0:51 some other things and just recently launched three gear investments with two longtime friends and partners. Awesome. Congratulations. That's really exciting. just sorry, quick little thing. I
1:01 went to college in New York. I went to the fashion institute. Okay, so I went to, yeah, so I grew up in Rochester. I lived in Manhattan for a few years before I came down here, but. Plot twist,
1:09 he also went to the fashion. Yeah, I was like, very good school, by the way. It is a really good school. Yeah, it was an awesome experience. So today, Sean, you are gonna talk to us about
1:20 energy markets and investing in energy companies. So let's start there. The term energy market, I think all of us, for the most part, are familiar with investing. I feel like every time I'm on
1:32 TikTok or Instagram, that's the new thing. All these people are trying to teach Gen Z and millennials to start investing early. And
1:43 I think when people think about investing, they think common stocks, I don't think anyone's first choice is energy, maybe. So. Not lately. Right. Yeah, so talk to us about just the term energy
1:53 market. What is the energy market in terms of investing? How is it different than the regular? stock market. So when you're thinking about, so you made a good point there, so stock market. So
2:05 we're talking all equities. We're not talking about the commodities because you can trade the commodities and invest in the commodities. That's a whole different level. That's energy three on one
2:14 probably. Well, and I think Chuck mentioned to Julie, ask Sean about trading. And I was like, I think that trading should be a part two. Yeah, trading is definitely a part two. So trading's
2:23 part two, energy one on one, markets one on one So energy's become, so for the last, last couple of years, energy's become interesting again. And a lot of that came out of COVID, the pandemic,
2:38 and then really the Russia, Ukraine war. You saw a lot of supply chain disruptions. And so energy became a very popular thing for people to talk about. For the
2:51 2014, 15 through 2020 period, there was very little interest in energy and the primary reason for that was, and this will be something that I hit on a lot is. Companies have to generate a return
3:01 on their invested capital. Right. And so what you saw with the energy industry as a whole was very poor returns because there was a lot of capital investment in long lead time items. And when
3:14 commodity prices collapsed, you saw the returns on invested capital go down. As a result, if you go back over time, you'll see that there's a very strong correlation between return on invested
3:26 capital and the valuation of a company or an industry within the stock market. Right, that makes sense. Yeah, back in 2001, I started working for a guy named Doug Tarison. He was the head of
3:38 energy research at ISI and we had these things called the bubble charts. So it took every sector of the SP 500 and it showed their return on invested capital over their cost of capital and where the
3:51 valuation translated to And it was a very tight, you know, 65, 70 R squared. And that's held true over time. So no one was paying attention to energy. Right. And it's become more popular to
4:08 talk about, however you raised an interesting question is what is energy? Because when people think about legacy energy companies,
4:19 Exxon, Chevron, Pioneer, you know, Valero, the like, it's all hydrocarbon, but it's transportation fuel It's diesel, it's jet fuel, it's bunker fuel, asphalt, things like that. And
4:34 energy's now started. It's a more encompassing vernacular because you're talking about new forms of energy, like electrification, solar wind. You've got clean energy, so battery technology,
4:48 smart grid technology. So energy as a subsector or as a part of the market, or a part of our daily lives is in every day. day. And it's not just about this clean tech electrification process
5:05 because in order to turn on the lights, you have to make the lights and you need to either or the lights. So I think that there's an important process going on here where people are trying to
5:18 differentiate what does old energy, what do hydrocarbons really mean relative to the idea of electrification? And that is a process that has slowly starting to take the narrative and people are
5:35 talking about it more and more and we can get into more detail on it. But energy is in everything. When I first started in investment banking, the reason why I chose the energy group at Morgan was
5:48 because there was nothing that you could read or hear or see that didn't impact the energy ecosystem. as the US. has grown and become an exporter of natural gas liquids, natural gas. And we've
6:07 been an exporter of refined products for a long time, but we really are the primary vehicle of growth and the supply chain disruptions, the importance of energy in all forms, electricity and
6:23 hydrocarbons for
6:25 the developing world and developing economy I think it's a really exciting time. And because very few people have paid attention to it. So a lot of education doesn't need to be done. Yeah, well,
6:36 hopefully this helps. Yeah. So what, when we're talking about investing in energy, are we talking about, I feel like this is our first kind of dumb question. I know this, is it like, are we
6:48 investing in the companies? Yeah, is it companies investing in other companies? Is it us investing, like if I wanted to go buy
6:58 or something, it's at all at the above, which is also that, is it very expensive to buy stock in like the big Exxon Chevron? No, so
7:09 things can be expensive, but that's where valuation comes in, and that's where portfolio management comes in. The, when you, if you want to invest in energy, then you have to decide, do I want
7:22 to invest in all of energy? So do I just go buy an ETF, which has a lot of different types of companies in it? They'll have integrated oils, they'll have refiners, they'll have some midstream
7:34 companies, or do you want to go buy the specific company? So, or in a specific industry. So if you want to buy the integrated oils, you go buy Exxon Chevron BP Shell. If you want to buy an EP
7:47 company, you'll buy
7:51 EOG, Antero, Equitable, something like that the midstream. is your enterprise's energy transfers, Phillips, and then downstream, you've got Valero and Valike. So, the reason why I bring that
8:04 up though is because each specific sub-sector has different
8:12 phases. There are different points in time in the cycle where they're very profitable and they can make more money. So, for example, when crude oil prices or natural gas prices are really high,
8:23 EP companies are going to do really well because they've got a lot of operating leverage to that. And so, that means that their returns are going to be higher. On the flip side, as volumes start
8:34 to grow, and as they have, if you've got visibility to volumes being attractive or high for a long period of time, you want to own a mid-stream company because their business model is predicated
8:48 more on throughput. So, how much is going through the system?
8:54 For the novice investor, like for someone who is looking to allocate capital to energy, the easiest thing to do is to go buy the ETF. The problem with that
9:06 is an ETF is a basket of all securities, and so there's going to be good and there's going to be not so good. And I actually had a conversation with a friend of mine who is at
9:20 an investment bank and they do ultra high net worth allocations. And she was making the comment that a lot of people who are younger are actually allocating. They just
9:33 want to invest in ETFs because over the last 15 years, everything's gone up into the right and that's where there's no risk, you just own it and it's going to go up anyway because that's what it's
9:43 done for the last 15 years. Now the last 15 years interest rates have been close to zero went up into the right. Valuations seem a little bit frothy in my opinion. Yeah. So I always prefer to
9:57 invest in what you know and what you're familiar with. And if you start there, then you at least have a basis for understanding for what they do and why. So my kids have small little investment
10:14 accounts. They have a share of Apple, they have a share of JP Morgan, things like that But I made clear that I want you to know why you own it because then when you start to see stock prices move,
10:28 you can have an idea of
10:31 triangulating what the drivers are for making it go up and down.
10:38 So if you were to invest directly into an energy company, you would definitely wanna know which subsector you're in, what the risks are related to each subsector, and be very comfortable with that.
10:55 To your question about are they expensive, some of them, you can buy stocks for a share of stock for less than 10. Some of them are
11:07 160, with most, I think with most
11:12 brokerages nowadays, I don't know if you can buy fractional shares, but if you reinvest your dividends, they'll give you fractional shares and things like that. But whether something's expensive
11:23 or not is, it just depends
11:27 on the momentum of how attractive something is relative to other things. And so I mean, I could make the argument that I think tech is overvalued today because there's a lot of momentum because it's
11:42 worth Yeah. Now, if I really want to put on my long-term hat, I'd say chat GPT is great, but it uses a whole lot of electricity. Where does electricity come from? Energy, yeah, right. So
11:57 we'll get into this more, but we're entering this decade, this next decade, next 20 years, where electricity demand is gonna grow tremendously. And we're gonna need all sources possible to meet
12:13 that growing electricity demand And so it's not a question of, do I want coal-fired power generation, natural gas-fired power generation, nuclear, or if I wanna have an EV, or an internal
12:27 combustion engine, or if I wanna use wind and solar, we need all of it. Yeah, we agree, yeah. Right? Period, we need to stop. And to me, that's one of the exciting things about where we are
12:38 at this point in the economy, in the market, because so little people have paid attention to it, that there is a real opportunity to differentiate and be. focused in where you allocate that
12:49 capital, because
12:52 people are still of the mindset that the passive investment model will work, and that's not going to happen in a
13:06 55 Fed funds rate. Yeah. So I went all over the place. No, it's okay I feel like it's, I'm just hearing you talk about, which makes sense, you know, understanding the different sectors of oil
13:21 and gas and energy to kind of know when they're going to be profitable and when they're not. It just seems like a lot of work. I would assume that's why some people go to people like you to help
13:30 them manage that. Yeah. Because I mean, I just feel like that's a lot of upkeep and a lot of research is just knowing what's happening. And I guess it's different. are like in the thick of the
13:43 industry. Like some people, I feel like for us three, you know, we work here, but I would still like, by no means consider myself an expert and yeah, anything energy related. So I would make
13:54 myself bankrupt trying to trade it out. Well, and I, and unless you can really just, and I'm not, all of it, take all this with a grain of salt, right? I'm not giving it a natural advice to
14:05 that. For sure. Right. But the, unless you can actually get in there and spend the time to move around your portfolio, don't trade it, buy it, own it. Just let it ride. And let it ride. And
14:21 that's not to say that you should be
14:27 undisciplined with your money or undisciplined with your investing. If something changes, you obviously, you make a move. But it's always when people trade that it can become the most problematic.
14:37 And sometimes those are the best times to buy more or to sell when things look irrational.
14:47 Your point about it, it being challenging is,
14:52 I've done this for 25 years, plus or minus, been around energy on the financial side. And I think that experience really does matter. But that's the same in any industry, right? And there is a
15:11 value in wisdom There is a value in knowledge in knowing the parties and knowing the people and the pieces. The thing
15:20 that I found really important is to just try and keep it as simple as possible. What does this business do? And where are the competitive advantages? Where are the challenges? So a couple of years
15:37 ago, I spent a lot of my time on the midstream side. You know, midstream used to be very fragmented. There would be a lot of hubs and spokes. And what you saw with all these hubs and spokes, and
15:50 this was really something that Dan Duncan, who was one of the founders of Enterprise, came up with back in the days like, you always want to touch the molecules as many times as possible. And all
16:02 they, all these, all he means is there, the minute that I have to give, I have to transfer the ownership of that asset to somebody else in the storage terminal, that I'm paying them. So the
16:12 value of that integrated value chain is incredibly important in something like the midstream space because you can control your own destiny, you provide more optionality. The same thing can be said
16:25 for the integrated oils, because they've got EP, they've got chemicals, they've got midstream, they've got downstream
16:35 But there
16:39 is certainly pockets of opportunity Mm-hmm. More niche. Yep. Because there is value that accretes at different points in the cycle. So, how would you say, I would imagine, you know, we talked
16:53 just briefly about the rise of like renewables and clean tech and climate tech and stuff. So how would you say a market comparison maybe in terms of pricing or safety and risk? Does like oil and gas
17:07 obviously more established companies compared to renewables, I feel like in my mind, I would think that investing in renewables might, I think right now seems very, you know, it's the energy
17:20 risks of the future, but I feel like it would also be pretty risky considering a lot of them are not super established. There's a tremendous opportunity in clean tech, clean energy, clean
17:35 electricity They
17:38 are nascent. There is a lot of. risk around the integration of them. How do these things fit into the grid? There's a lot of conversation today about the backlog. We have plenty of supply of
17:53 solar and wind, but we can't integrate into the grid because of regulation. So regulation hits everybody. Yeah. So I think that it's important that there's a lot of money to be made in investing
18:08 in some in clean tech. However, it's not going to be all companies. For every winner, there's probably going to be a few losers. And that's not to be disparaging in any way. It's the same thing
18:23 that transpired in the energy patch. There were some people that made it through the cycle, and there were some that didn't for one reason or another So, the challenge that I see with it today is.
18:39 Helping people allocate capital thoughtfully and judiciously so that you can be part of that incredible growth that is absolutely necessary over the future without putting all your eggs in one basket.
18:58 And that's where you really run into trouble with some of the things like ETFs and dedicated portfolios, because all your eggs are in one basket And you'll go through periods of time where there's a
19:09 rational exuberance in the market where this is the best thing going and the sky is clean in Los Angeles and I can see out the bay and everything's beautiful. So I'm just gonna go by a bunch of clean
19:21 tech and I'm gonna do it because everybody else is doing it. And then I realize that they're not making money. And when, well, the value of the equity can go down and the challenge is you have to
19:37 have an outlet, you have to be able to raise more capital to continue building a growth company. That's why people go public. So you can readily access the market.
19:50 But when the market is as the equity market and the broader market is as, I would say anxious as it is today, it's really hard for anybody to raise capital, old energy, new energy, unless you
20:08 happen to be one of the five tech companies that's been leading the market higher over the course of the last year. Yeah. The point on traditional energy companies and being safer, it wasn't always
20:14 the
20:19 case, right? So when you look at them today, though, the capital discipline that these companies are demonstrating has allowed for significant amounts of free cash flow That free cash flow will go
20:35 up and down, depending on what's happening with that. at the commodity, but it's still free cash flow. Right. And so you are not beholden to the markets. You're not beholden to what the
20:49 investors say. You can manage your own balance sheet. You can live in your own house. You control your destiny. And as somebody that's invested in energy for, again, last 15 years, but covered
21:03 for like last 25 on the research side and on the buy side, management teams really like their position that they're in with very strong balance sheets, with free cash flow, the volatility of the
21:21 internal operations of the company is a lot lower because they aren't worried about having to go out and raise that next round of funding. Right, right, yep. I had one, I mean, I had one
21:32 executive tell me a couple of weeks ago, I said, you know, when you invest at the top of the cycle, at the bottom of the cycle. And then you have to hire at the top of the cycle. And so when
21:44 corporations, businesses are always or should always be planning out over a 10, 15, 20 year time horizon, that's not usually the investment horizon of an equity investor. And so there was this
21:59 incredible mismatch in duration of what the company was trying to do versus what the investors were trying to do. And that's, that's what happened a lot over the last 15 years. I think that that's
22:10 starting to normalize where you're, you're getting people who are more appreciative of the longer term dynamics, but you have to be an owner and not a renter if you're gonna, and that's why it's
22:23 important to know what you own. Yeah. When I think talking about the timeline, what do people look for? What should people look for? Are they, you know, hoping that they are going to see? a
22:36 significant return, X of return in three years, five years, I know, like we were talking about earlier, it's unless you have the time and knowledge to trade daily and manage it that way. You
22:50 know, you buy it, you let it ride. What's like the end goal? Like at some point, do you like cash out? Do you make the money or like what's - Yeah, it's a good question. Does it just like ride
23:01 forever and then you die and it goes to your kids? Like what's the point, you know what I mean? I don't know. The value of compounding is incredible. Yeah. So, and I think that's something that
23:14 people don't really appreciate as much as they should, especially if they're just starting out. Savings and compounding is an incredible way to make a lot of money over a long period of time. And
23:29 you might end up leaving it to your kids, but they're gonna be in a much better spot for it and hopefully they compound it too and don't spend it all on it. That's probably the hardest part, like,
23:37 for patients, yeah. You see, your bank account go up, you're like, right, take out, take out. And it is, and so it's, you always, I think you always want to invest with, you want to invest
23:48 with what you can lose. And you - It's kind of gambling, almost. Look, it's an equity, so equities are the lowest run of the cap structure. So equities can go to zero, that's why there's
24:03 bankruptcy And
24:06 that is a reality. That's why
24:10 I'm more risk averse. I prefer to, I'd rather make a 15, 20 return over the course of a couple of years versus trying to shoot the moon and make 80 on a trade where it could also go to zero, right?
24:29 But that's personal preference And I've got, I've got a small, like. snippet of money that I'll say, yeah, this is something which would be really interesting. And you take your shot on it. I
24:42 mean, I bought Bitcoin at 15, 000 and then I sold it at 35, 000. Now, I didn't buy a lot, right? But that was okay. I also know a lot of people that owned Bitcoin at 600. Yeah, right
24:57 the other way up. Done incredibly well. But
25:02 you can use the value of your portfolio for other things, and you can borrow against it in time. Not something that I'd recommend, but the way that you, it's personal preference, but the way that
25:15 you measure yourself, I think is how is a portfolio done relative to, or how have your investments done relative to, if you had just left it in the market, or how has it performed relative to
25:28 inflation? Because if your portfolio goes up 6, but inflation has gone up 10. Right. you've lost for the first time. Right, you're in the red. Exactly, so it's a really, it's a hard question.
25:43 And it's about you've got to be patient and you've got to know what you own and why you own it. I think that's the thing that has always tripped me up with the notion of buying index funds or passive
26:00 management and people who run really large portfolios with hundreds of stocks, things like that nature, which is just not my MO. Because if a stock makes money or loses money, I want to know why.
26:17 I want to be able to answer that question instead this is what worked, this is what didn't, this is what I got wrong, right? You get things wrong and that's okay as long as you learn from them.
26:29 And sometimes it builds that credibility but the single biggest, the single most important. to me on investing is to know why you own it and know what it and know the fundamentals of it. So,
26:46 playing off of that, if we wanted to start, what should we look for? Do you tell people to start with your interests? I know Joel's up to fashion school, should she because what she knows should,
26:58 would it be smart for her to invest in some brands? No, I mean, absolutely. It's because it's got to be what interests you. If
27:08 you're not interested in energy, then it's going to
27:14 be watching paint dry. I mean, my wife was a buyer for a large department store. She loves fashion. So, that's something that she pays a lot of attention to. She's really focused on health. She
27:27 spends a lot of time looking at things like that If you have that passion for whatever area of the market it is. then you should absolutely watch it. And that's where you should focus. It doesn't
27:40 hurt to spend time trying to learn about other areas. And so I think that the more you can know about how that industry fits into the rest of the ecosystem, the more knowledgeable you are about your
27:58 own industry, the better. But absolutely, you've got to love what you're doing I couldn't - I don't know that I would have as much passion about being involved on the investment world if I was a
28:17 generalist looking at DuPont, Pfizer, JJ, and what that's just - they're incredibly fascinating businesses in their own, right? But to me, it's just the geopolitics, the ecosystem, the
28:32 economics of energy that I
28:37 I have a quick question too, so going back to what we were talking about earlier, when does a company decide to go public?
28:47 It depends on the company. I mean, I don't have a great answer for that. It's usually a dynamic where, as a company has grown with private capital over a period of time, there's two things that
29:02 happen First, the capital that was in from the beginning or has built it up as it was a private entity needs an exit, right? So you need liquidity or want liquidity because to your point,
29:20 otherwise you just watch it sit there forever. Right. And your investors are probably like, I mean, my money back. Yes. And that happened, look, and that happens a lot in private equity. Well,
29:28 I'm sure it happens for, call people, I guess. But, you know, I'm sure, you know, employees that are coming in with equity. I'm sure at some point they're like, you know, whatever we're
29:38 going to get paid out. And then. And that happens when the company goes public. And you so usually what? Or during an acquisition. Or during an acquisition. Okay. So if it gets bought, then
29:47 then there's a liquidity event. But usually when a company is going public, it will be to create liquidity, but also offer a way for the company to access more capital than it could otherwise get
30:01 in the private markets. Right. And there's a lot of growth that they're looking to achieve
30:10 or pursue. So back when the, you know, the midstream boom, when all of those companies were going public, I mean, at one point there was an equity offering, I think every three days over the
30:22 course of a couple of years IPO seconder and like a lot of capital came in. But the vision there was there are a lot of these. assets within traditional energy companies or that people were going to
30:36 out and build, go out and build, where they needed more capital than they could otherwise fund. So they IPO'd, they went to the public market and that's how they raised capital. And you continue
30:48 to raise capital through secondary issuances. When you get to a mature business, like where we are with energy today or traditional energy, not the lower clean tech. And they're operating as cash
31:03 cows. That's a really good place to be in, but that is a very
31:10 unique dynamic relative to other aspects of the market. So usually you need cash. You've got attractive opportunities for growth and sometimes you wanna have that public currency floater because it
31:25 can also make you more attractive from an acquisition perspective Right. obviously makes complete sense, but I don't think I ever thought of it like that. Like going to public is really just a way
31:30 for a company to raise more money, right? Right, yeah, 'cause anyone who can buy a share. Yes, anyone, I mean,
31:42 you just need a brokerage account and you
31:49 can buy it. And now you're buying it from somebody that's selling it. Right. So there's only, I was gonna write next question, like there's only so many shares within a company. So it's not just
31:56 like, oh, everyone can Yeah, so when you IPO,
32:02 you'll sell 20 million shares into the market. And that's predetermined by - But no, I mean, that can be any number. But I mean, the, I'm assuming like the board, whoever, the actual company,
32:14 that's that. The banks, how much capital they need to raise, what's the appropriate value? Oh, got it. So it's totally like, calculate it. Well, yes, what we'll enable it can be. Got it.
32:26 So they come up with whatever that share account is And they put it out into the market and yes, that's all that is available. It's called the low. And so if they want to raise, if the company
32:35 wants to raise more capital, what they'll do is a secondary offering or as one way to raise capital. And that will put more shares out into the market. But unless you're actually buying on an
32:48 offering or a company is doing an offering, then you're just buying it from somebody who's trading it Yeah. So kind of a two-part question. Keeping it simple, if someone wants to invest tomorrow,
33:04 what's the first step? Is there somewhere that we
33:09 go to look to see or bank? Do we go to
33:17 a website? Do I chat GBT? What company should I ask then? I'll give you an answer, actually.
33:23 If you wanted to invest, there's plenty of
33:28 ways to do it that are very easy.
33:32 And it's go to fidelity, go to a Schwab, go to any of the large investment banks. I'm sure that your bank probably has a trading system around it, and
33:47 it's an easy Google search to see where you can trade. And then you open an account, you deposit money in it, and you can be off to the races Now, I say that it's probably a little bit too
34:01 flippant to put it that way. I mean, I'd be a little bit more deliberate in terms of how I was doing it. But investing is not setting up the process for investing isn't difficult. And
34:14 I don't know if that's good or bad, to be honest with you. I think that there's a benefit to having some degree of discipline and risk enforced on people so that they don't just go out and lose all
34:29 their money. Exactly, because not everybody, because, I mean, you heard lots of stories about the all of the money that came out in the pandemic where people were investing it. They were buying
34:42 memstocks and they were buying Bitcoin. They were buying. Dogecoin. Dogecoin, yeah.
34:50 And it's hard because if you've put your monthly rent into the memstock that all of a sudden, you know, it was up 900 and somebody said it was going to go up more and then it crashes, what do you
35:04 do?
35:08 Investing is.
35:12 It's a discipline and it's got to be with what you have on the side, not what you
35:21 need to live. It really does remind me of gambling. People go to the casino with their paycheck and hoping that they're going to hit it. you know, jackpot on the slot machine and then they're out
35:32 of their rent, so you know, it's - Yeah, and that's where, and that's
35:37 the exact opposite of what I try to do, and we try to do, like our thesis, our model, our ideas, always around preservation of capital. And so that's where fundamentals matter and valuation
35:54 matters, and you take a really, you know, deliberate approach So unless you can spend a lot of time on it, it's not bad to buy an ETF, right? But, and to learn that way and gain some exposure,
36:09 but I absolutely would strongly advise against anybody thinking that putting money into the stock market means it's gonna go up. That's just not really what works. Well, that's a good way to put it,
36:23 'cause I think most people that don't have a ton of knowledge think, Oh, that's how I'm going to make the money. I'm going to put it in the stock market. And look,
36:32 somebody gave me a quote a couple of months ago said, look, the stock market is always gone up. And if you look back over time, there's been volatility and there have been crashes. And the market
36:44 has come back and it grinds itself higher. I'm not a fortune teller. I don't know if I don't know what that means But if you
36:56 timing is everything and the stock market might go up from here, but it might stay here or lower for the next 10 years. I'm not suggesting that. Right, but you never know. You just don't know.
37:12 You never know when a pandemic is going to happen. What I was going to say, what are some of the factors that lead to a large downturn crash? Obviously. Good question.
37:31 Look, if you go back to the global financial crisis, that was just a lot of leverage embedded in the system. There was everyone was buying a home. You were able to buy houses with no money down.
37:43 I mean, I remember I bought my first house. I think I wrote a check for 1, 000 and I mean,
37:51 you really didn't need to do anything And now, fortunately, I was able to pay my mortgage and do all those other things, right? But if for the people who didn't have that ability, that's where
38:08 people go upside down on their houses and the market crashes, the shocks to the system, pandemics, shocks to the system, a flight to safety, right? If there was a concern about something that
38:25 was and people were afraid of being solvent. We don't see it in the US as much, but we saw it just recently with Silicon Valley Bank. There were people literally lined up outside the bank to take
38:42 their money out 'cause they didn't know if they'd be able to get it. So fear. And you never know when that's gonna happen. You
38:51 don't know where that kind of
38:57 that kind of catalyst can come from. And it can come from a lot of different places, especially in a global ecosystem. So it's, and that's why you hear all the stories. And I am not an asset
39:10 manager at all, right? I mean, I've got a financial advisor and she's probably killed me right now.
39:18 But it's the
39:21 value of diversification the value of. not having all of your eggs in one basket. I said that before, but it's it the crashes can happen. And, and frankly, if you have your, you know, your
39:38 side pocket and you have diversified and when that crash happens, hey, that might be a good time to actually put the money to work, right? Right. So there's a value add for, you know, investing
39:51 over time, right? Just being slow and methodical. Here's a dumb question. What is an ETF?
39:59 So an ETF, yeah, it's not a dumb question at all. An ETF is an exchange traded fund. Exchange? Exchange traded fund. It's like a mutual fund. So
40:10 in that you, it's a basket of securities that somebody manages and generally it's a very low fee, but you can get exposure to a number of different things like theirs, you can get. high yield,
40:26 you can get consumer, you can get discretionary, you can get energy, you can get different flavors of energy. ETFs have really exploded because people have wanted to get more focused in terms of
40:40 the niches where they could allocate capital and the fees are relatively low, so it's the equivalent of buying a stock, so
40:54 an ETF is trading for 20. That doesn't mean that it's the aggregate price of all the stocks in the ETF, it's just you own that small percentage of the shares in it, then that's the net asset value.
41:08 How many stockcompanies are usually in an ETF? Good question that I do not have an answer to It just varies. It
41:19 can be a function of the industry, it can be a function of how many companies there are
41:26 So I would find it difficult to argue for an ETF that, you know, less than 20, 25, 30 companies. Okay, that makes sense. But I don't, that's a good question.
41:39 I feel like wrapping up what is
41:45 your like number one piece of advice for anyone looking to invest? Know what you own. Yeah. Know what you own. And number two would be, be patient.
41:57 It's a hard part. I mean, the best generation person. Look, it's. Did you evaluate
42:04 it? And knowing what you own, I mean, the, the sub thread to that is that fundamentals matter. And we can get, we can get really caught up in the, in the here and now, And, you know, you
42:19 mentioned earlier TikTok and Instagram and like there's There's so many ways that people get information. Investing is a process. It's not immediate gratification
42:36 and that means that you've got to, in my opinion, you've really got to understand the fundamentals of a business or a company to feel comfortable with putting your money there because to your point,
42:51 you made it a number of times You can lose it. It is at risk and you invest because you hope that you're going to generate a return which will allow your portfolio to grow along with or better than
43:07 the rate of inflation in the market so that, you know, at the end of the year, you end up with just a little bit wealthier than you were and because the cost of everything goes up for one reason or
43:19 another and that's not going to change. demand, demand is going to continue to grow globally in a number of different ways. But it's know what you own and know the fundamentals of why you want to
43:32 be patient. It is, it's reading a book, not watching a, a thread. Right. Yeah. Yeah. Yeah. Misty,
43:44 do you want to do our wrap up questions?
43:49 All right, what is the number one misconception about energy industry?
43:57 I think that the number one misconception around energy is that it's just about, it's just about transportation fuels and that the,
44:10 now that I can go on for hours on this one. But the number one misconception is that it's about transportation fuels The vast majority of what comes out of a barrel of crude oil or natural gas, or
44:23 comes out of an MCF of natural gas or natural gas liquids, so for perspective, you know, crude oil gets refined into jet fuel gasoline, diesel, distillate. Natural gas has things associated with
44:39 it and you can get this from the crude streams of natural gas liquids. So natural gas liquids are propane, butane. natural gasoline, all things that can be melded together, but they also turn
44:51 into the plastics for the chemicals, right? Yep, yep. So the, I would say that
44:59 when you think about energy and people talk about crude oil demand and hydrocarbon demand, plateauing, if someone ever says that to you, ask them when plastics demand is gonna slow. Mm-hmm. So
45:14 you've never heard of plastics executive, say that we've seen peak plastics. Yeah. You've got 12 billion people that are gonna enter the middle class by 2030. You've got 80 of the global
45:27 population is gonna be in Africa, India, and Southeast Asia by 2050. Peace. So all of these markets are, they're growing, they're emerging, they want these things and there's no reason why they
45:43 shouldn't have them, period.
45:46 I think that the number one misconception is that energy is not just about electricity. It's about a lot more than that, and it's not just about motor fuels and
45:59 it's not easy to switch. Yeah. Right? I think that's the other thing that people don't appreciate is we've got hundreds of years of infrastructure in place, whether it's grid systems or pipelines
46:14 or what have you, supply chains, bottlenecks, all of that, that it will be a process. There's an evolution going on to be sure. And again, we've talked, we need all of it and I fully embrace
46:28 it. And it's someplace where I like spending a lot of time to learn about it But the number one misconception, I think, is that
46:39 energy is just transportation fuels. That's close second to that though, I think, is that
46:47 And this is improving. Frankly, candidly, because of what came out of the pandemic. But there was a misconception that energy companies are bad. They don't care about the environment. Some of
47:00 the most ardent environmentalists I know are people who care about their ranches, their land, their people, the animals, right? They love the environment, and they don't want to see something go
47:15 poorly They just never advocated it or communicated because it was just how you did business. There's always bad actors in every lifestyle, or in every facet of life.
47:29 And people who could do things better, accidents happen, it's unfortunate. But energy companies, traditional energy companies, are doing so much and can do so much to improve their own
47:40 environmental footprint. And they are working to
47:44 do that So I don't.
47:48 vilify energy companies. I think that they just don't get into credit. Absolutely. Yeah. Yeah. Why should people care about the energy industry? Because there is not one thing that someone will
48:03 do in the course of a day that didn't come from energy.
48:09 Not one thing. You can't get out of bed. You can't take a shower. You can't wash your hair You can't drive your car. Even if it's an EV. It's all made of plastics. There is not - Can't call your
48:21 mom.
48:24 You can't call your mom. Your kids can't watch Disney, right? There is nothing that we do that doesn't come from energy. Food. If you took away fertilizers, we would have 25 of the food crop
48:39 that we have today. Fertilizers come from natural gas.
48:47 That's terrifying, yeah, but it's really terrifying. Like energy's in everything. And the notion that we're gonna ban fossil fuels is it's unfortunate to me and it's extremely divisive because
49:04 let's just make everything 1 better. Let's just do it more efficiency. You know what they should do, the VR headsets, like they should make people who feel that way, put them in an immersive
49:16 world where we ban fossil fuels. There are, there is a good idea. Okay. I'll give credit to a company called Energy Transfer. Energy Transfer has had a number of commercials. They've done them
49:30 in the Super Bowl. You can see them on LinkedIn and they might even have on their website. But they show that. They show what happens, like if you ban fossil fuels, right? It's a couple going on
49:43 the date. right, all of a sudden, like - Everything just disappears, yeah. And then you're just sitting there, just you exposed
49:52 the rest of it. Yeah, exactly. You're like, No, I'm moved. Yeah. So it's, and I think the industry is trying to, is being more communicative about that and trying to be proactive about it.
50:03 And I think that they're trying to do it in a thoughtful way where it's not in your face. Yeah. It's not a,
50:09 it's not an us or them thing I mean, BP just posted something the other day or said something the other day where it's and not or. Yep, energy addition. Addition, right? And it is, that's four,
50:26 it's four electricity,
50:30 right? We need to recycle more plastics. We need to do a lot of other things. But there's not one thing that anybody will do in a given day that doesn't utilize energy hydrocarbons.
50:43 We had a I was at a Mensa meeting a couple of years ago, was hosted in Houston. And a woman from Tixoga, Texas Oil and Gas Association presented. And this lady stood up at the back and, Yeah,
50:60 she said, I'm 100 renewable. And she had solar panels on her house and a wind turbine. And the speaker from Tixoga said, Well, how were they made?
51:15 I'm gonna look at the tags on her clothes. Yeah, well, yeah, exactly. But
51:21 she went on to say, Your power today is renewable, but the wind turbines that were created, they came from hydrocarbons. Solar panels require hydrocarbons. And so it's, once you get there, it's
51:35 fine, but you've got to look at the entire life cycle. Right, yeah, the whole process Of the process. Mm-hmm, I agree. Educating people and essential it, yeah. And actually that's been so
51:48 much fun over the course of the last, caught 18 months. People want to have these conversations. And that's when we did this podcast. When I was back in at Morgan Stanley and I was doing equity
51:59 research, people like to talk about it. And for a long time people haven't, but now it is, it's fun.
52:07 Sean, where can people find you? LinkedIn is at the best way. Yeah, I'm on LinkedIn. Cool We'll link it in the show notes. I don't know. Yeah, I don't have all the other stuff. That's okay.
52:18 You don't need one. Thank you so much for joining us. Thank you. This was very knowledgeable. Yeah. I appreciate it. I love what you all are doing. I think that the, you know, the more
52:29 education that's out there, the better. There's actually a great guy that your listeners should listen to if they want to learn more about energy and think about this. A guy named Scott Tinker. Oh,
52:39 from your team. From yes Scott is phenomenal. He just, he's a, he has some podcasts. He's got a series out. I've heard him speak a couple of times, just so grounded and rational and pragmatic.
52:55 It's just, it's a really easy way to have a conversation without getting into all the catastrophizing and all the, you know, the, the, the, the, the divisiveness. Yeah, we should have him on
53:06 energy when we should. We tried to get him to speak at Fuse, we asked, but I think he was already committed to something else He's very busy, I know. Speaking of for all of our listeners, two
53:17 things coming up, August 10th in Oklahoma City is our last energy tech night of the year, and then Fuse is back better than ever. Our bigger conference in October, October 30th and 31st here in
53:30 Houston. Halloween, Halloween costumes are occurred. Halloween, yes, they're may or may not be a costume contest and Chuck Gates may or may not be dressed as a cow.
53:41 I'm going to either just throw that out there and. Yeah, now he has to do it. Now he has to do it. Cool. All right, catch you next time.
