Reviewing the performance of your investments is key as it allows you to figure out common themes between both your winners and losers. However, looking at the performance over just one week or one month is not what we are about here at the Motley Fool. Short-term trading has its place, but taking a longer-term view of performance reduces irrational decision making. Performance over the course of an entire year can be a good barometer for the general trend of a firm.
So with that in mind, what can we say about the performance in the share price of Tullow Oil (LSE: TLW) over the past year? Commodity stocks are known for high volatility, due to them directly being linked to the prices of raw materials, in this case oil. Yet even with that being the case, an investment in Tullow would have seen whipsaw moves higher and indeed lower.
If you had invested £1,000 in Tullow Oil a year ago, when the price was at 183p, it would now only be worth £371, having seen a fall of 62.9%. This is based on the closing price from Friday at 67.85p. Given that in April the price touched 250p (an appreciation of 36.6% in just a few months), what has happened here?
The news dominating the Tullow Oil share price has really come in the final quarter of this year, when the share price has come sharply lower. If you had invested a year ago and were holding the shares even as recently as early November, you would have been in the green. Using the share price from the first week of November (at 217p) you would have been up £185 from your original £1,000 investment.
What really hampered the returns you are seeing were two sharp falls in the share price.
The first came on 12 November when the company announced that it was cutting the oil output from fields in Ghana, due to mechanical and other issues, to 87,000 barrels per day, down from previous projections of 89–93,000. It also highlighted that free cash flow would decrease. This saw the share price fall 20% in one day, wiping out all of the gains seen in 2019.
From here, your investment still would have not been at a significant loss. Yet the second big fall came last week, when the share price fell to a 16-year low after a perfect storm of negative events. Tullow Oil’s CEO and exploration director left, output expectations were cut to 70,000 barrels per day, and, on top of all that, the dividend was scrapped. It was this second fall which caused the significant decrease in the value of investment.
From here I would suggest new investors wait on the sidelines to get more information from Tullow before committing funds. For existing investors, as mentioned at the beginning, I believe in longer-term investing and so do not see the value in panicking and selling out immediately. Let’s monitor events as they pan out over the next few weeks.
Jonathan Smith owns shares in Tullow Oil. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.