Publications
Partners
Earlier this year I asked the question of whether I had made a mistake with my investment in Sasol* and whether I should exit the holding (Are resource stocks a bad choice?, 20-26 March edition).
At the time the oil price had collapsed and Sasol had followed it, trading down at around R400 after a high of over R650 in mid-2014.
Some background
I have held Sasol since the early 1990s and the dividends I receive these days exceed the initial price I paid for the shares.
That said, I’ve bought Sasol many times over the years – most recently when the price started to collapse in late 2014.
My logic for holding Sasol was always that, while oil is a commodity, it is in many ways different from other commodities because our planet runs on oil.
Aside from coal, if any other commodity were to disappear overnight, things would be tough but we’d survive. I
f oil or coal were to vanish overnight, the planet would grind to a devastating halt.
However, my concern was that while oil is a different commodity, it is still cyclical and prone to protracted bouts of price weakness and subject to the vagaries of supply and demand.
Therefore it’s not an attractive long-term holding.
Questioning Sasol as a commodity stock
At the time of the initial column on Sasol I did warn that the process of my deciding would be slow, and so it has been, but ultimately my decision has been to keep Sasol.
The thought process is fairly simple in the end.
Yes, Sasol is in part tied to the oil price but in truth Sasol is a lot more – it is a chemical company.
In fact, the JSE removed Sasol from the resource index and put it into the industrial index.
Further, the theory that oil is the critical commodity for planet Earth holds up.
Finally, Sasol profits are not tied to the oil price as directly as many assume, as recent results illustrate.
What is important is to know when a decision has to be made quickly and when we can take our time.
*The writer owns shares in Sasol.
Simon Brown has been interested in the stock market since his school days in the 1980s and bought his first share a week before the stock market crash of 1987. He started his first trading website in 2000. He has been investing and trading, while also teaching and writing about the subject of markets, ever since.
This is an excerpt from an article that originally appeared in the 3 December 2015 edition of finweek. Buy and download the magazine here.
