Triple-Digit Oil Investing and a Natural Gas Price Rebound: Bill Powers

By The Energy Report, on February 1st, 2012

Bill Powers Powers Energy Investor Editor Bill Powers doesn’t shy away from microcaps; he embraces them. In this exclusive interview with The Energy Report, he explains why triple-digit oil is here to stay and how the best-positioned companies will be sitting pretty when natural gas prices rise—as will investors who time the rebound right.

The Energy Report: Is it fair to say that you are a value investor?

Bill Powers: Absolutely. I’m very much a value investor focused on fundamentals and finding companies that can grow reserves, production and cash flow without taking on too much debt and/or diluting shares. Those are the companies that can have very strong long-term outperformance. That is my theme, and I think it is really powerful right now. The companies I’ve identified do not currently reflect future prices that their stocks will be receiving.

TER: Clean balance sheets, steady cash flow and a depressed market price: would that sum it up?

BP: Yes. The Canadian junior market has changed in the last 10 years markedly. It’s matured greatly. Many companies have proven management teams and very good cash flow but are trading below their net asset value.

TER: Do you try to stay away from micro-cap stocks?

BP: Absolutely not; I very much embrace micro-cap stocks. As a newsletter writer, my commentary is largely directed at investors who want information on companies that are below Wall Street or Bay Street’s radar screen. I try to find the company that I feel is best positioned in a certain play and that have the chance for the best share price appreciation. Usually, it’s not the large-cap producers who have acreage in the play.

TER: How do you define a micro-cap?

BP: I consider a micro-cap as $250 million (M) on down.

TER: You recently wrote in the Powers Energy Investor that foreign investors are paying too much for joint venture (JV) agreements with large North American companies. If foreign companies are overpaying, why is that depressing the price of gas?

BP: I’ll give an example: Chesapeake Energy Corp. (CHK:NYSE) made a deal with Total Energy Services (TOT:TSX) to farm out its Utica shale acreage in Ohio. To put this into perspective, there have only been a handful of wells drilled in Ohio into the Utica shale, primarily within one county. This is a speculative play and I am very skeptical of how productive the Utica shale could really be.

That being said, the way these deals are structured is that Total, the foreign company in this case, pays $600M up front to Chesapeake, which will be drilling wells funded completely by Total. So between now and the end of 2014, it will be spending $1.5B on drilling. There are other companies that have done similar deals totaling maybe $20B from largely foreign companies farming into U.S. acreage. This is important because the foreign company will fund drilling for usually two years irrespective of gas price, and when companies drill with somebody else’s money, they are not sensitive to the fact that gas right now is under $2.50/thousand cubic feet (Mcf). It’s a good deal for the American companies, but it’s usually a very, very poor deal for the foreign firms.

TER: Classic economic theory says that if you keep producing like this and prices get very low, people will quit producing. Then, eventually, prices will go back up. When does that happen?

BP: I think it’s going to be happening fairly soon. Right now we have a glut of gas. Part of this is due to Haynesville and Marcellus operators’ drilling acreage to keep leases from expiring. The rig count is really starting to fall, especially in the Haynesville, which is producing 6 billion cubic feet (Bcf)/day right now and is the largest-producing field in the U.S. But that rate has already flattened out, and production will probably start to fall as rigs continue to get dropped. These are very high-decline wells. Texas production is beginning to decrease because the Eagle Ford is not offsetting production declines elsewhere in Texas. Gulf of Mexico production continues to go down. Basically, with gas under $3/Mcf, virtually every field in North America is uneconomic, and we will see a big slowdown in drilling. Very few companies have attractive hedges in place because we’ve had low gas prices for a couple of years. We will see a rebound in gas prices, and it will be quite violent. The challenge is finding the right timing of it. It is not so much a function of when the economics make sense as it is about when other people’s money runs out. We’re seeing that happen right now.

TER: Have we reached the point of maximum pessimism yet?

BP: That’s hard to say. I do think there is a lot of pessimism, but that doesn’t mean a reversal is imminent. I do think that at some time in 2012 we will see that reverse itself, and when that happens we will see gas prices increase substantially.

TER: It sounds like you are playing a very bullish scenario for natural gas. One of the first things I noted in your model portfolio from your Powers Energy Investor is that you have significant personal exposure to natural gas.

BP: Yes, absolutely. From an investor’s standpoint, being a contrarian is easy when your stocks are going up or when your ideas are being recognized by other market participants. What I’m doing in my newsletter is finding gas producers that have been beaten bloody by the marketplace but are low-cost producers that will make it to the other side to see the rebound in gas prices. I’ve identified about five companies that are leaders in certain plays or that have very good leverage to what I think are some of the best North American unconventional resource plays. Those are all places that will continue to produce into the future because they have the better acreage that will become economic once gas prices go back to $4/Mcf. Right now, you’re getting a lot of upside for free because the marketplace doesn’t believe that gas prices will eventually rebound.

TER: Could you talk about those companies you just referenced?

BP: Sure. One of the companies is Ultra Petroleum Corp. (UPL:NYSE), which is a slightly bigger company than I usually cover. It is very active in Wyoming on the Pinedale Anticline, and it’s also very active in the Marcellus. It is a very low-cost producer. This company was a penny stock about a decade ago.

Another I really like, a smaller company, is Advantage Oil and Gas Ltd. (AAV:NYSE; AAV:TSX). It has a great project in the Montney in Canada. It is an extremely well-run company that I think is doing very good work up there.

There are other companies that offer a lot of value and have seen their share prices decline, such as Fairborne Energy Ltd. (FEL:TSX) in the Willrich. It’s a very exciting play in Alberta’s Deep Basin.

This is just a preview of companies that I think have good acreage and that are very leveraged to rising gas prices.

TER: Those were three of your five favored gas companies. What were the other two?

BP: One is Quicksilver Resources Inc. (KWK:NYSE). It’s a U.S.-based company that has a fair amount of debt on its balance sheet. However, for a small-cap company, it has fantastic acreage in the Horn River Basin, where it is very early stage, but this may turn out to be the best shale gas play in North America. Time will tell. This company has been around for more than 50 years, and it has a very good management team. It has been a leader in a number of shale plays. It had the Antrim shale in Michigan and the Barnett shale in Texas. It was one of the early players in those plays.

The other one I like is a bigger company that continues to produce very good results, and that is Southwestern Energy Co. (SWN:NYSE) in the Fayetteville shale as well as in the Marcellus. The company has a dominant acreage position in the Fayetteville and has really been able to grow its production quickly in the Marcellus. It is a very well-run company by Steve Mueller.

So those are just some companies that I try to find. Each is unique. Each of them has different catalysts that will help its share prices more than double once gas prices start to move up. I think these stocks could go up three- or four-fold from here without any problem.

TER: Ok, you love natural gas. What about oil?

BP: I’m very bullish on oil. I think there are some very good factors that will keep the price of oil over $100/barrel (bbl) almost irrespective of how the economy does. With the natural declines from the Gulf of Mexico and the North Sea as well as Venezuela and Mexico, a lot of countries are struggling to keep up production. I think the U.S. has been able to increase its production materially over the last five or six years due to breakthroughs in technology, but that does not change the long-term trajectory of oil production in the U.S. We will see declines from California and the Gulf of Mexico, and we will see further production declines in Alaska, which will largely offset some of the very exciting production growth in unconventional plays, such as the Bakken in North Dakota or the Permian Basin in Texas. I do think triple-digit oil prices are here to stay, and I think we could see $150/bbl before too long, especially if there is a disruption in the Middle East. I think the leverage available to investors with small-cap companies is really mindboggling when you look at what oil prices mean to these companies.

TER: What oil-based companies are we looking at?

BP: Arsenal Energy Inc. (AEI:TSX), a very exciting play in the Bakken. It also has acreage in the Willrich and a very good management team. It is growing its production, and it just did an acquisition that grew its production to around 4 thousand barrels (Mbbl)/day. It has a very strong future as far as production growth that’s high net back, high cash flow and reasonable balance sheets. That’s one company that I am very high on. It has a market cap of only about $109M. It is one of my favorites.

As far as other companies that have great leverage that will go up, I’m becoming very keen on oil sands companies. I think companies like Connacher Oil & Gas (CLL:TSX) are going to rebound and continue to rebound. PetroBakken Energy Ltd. (PBN:TSX), Petrobank Energy & Resources Ltd. (PBG:TSX) and Petrominerales Ltd. (PMG:TSE) are all very oil-weighted companies that will be able to really ramp up cash flow in 2012 as oil prices maintain the $100-level.

Then we do see some U.S.-based companies like SM Energy Co. (SM:NYSE) in the Eagle Ford. This is along my theme of trying to find companies with the best leverage to a certain play. I think SM Energy has the best acreage in the Eagle Ford.

A couple of companies are involved in secondary oil recovery are Evolution Petroleum Corporation (EPM:NYSE) and Denbury Resources Inc. (DNR:NYSE). I think both of those companies are very well-leveraged to oil prices.

So those are some ideas that I think will provide shareholders great returns in the next two years.

TER: Speaking of oil sands, the Obama Administration nixed, at least temporarily, the Keystone XL Pipeline from Canada down to the Gulf Coast. Are the concerns valid? Aside from the developer TransCanada Corp. (TRP:TSX), who does this hurt?

BP: I think this really hurts American consumers. I don’t believe the concerns over the environmental aspects of the XL Pipeline were valid whatsoever. I think this was almost entirely a political maneuver. Right now, the U.S. still imports a substantial amount of production from overseas, and I don’t think some of these overseas suppliers are nearly as reliable as Canada. We import a lot from countries such as Venezuela and Mexico, which are struggling to maintain their production levels and are increasing internal consumption. So I think it is unlikely we will see material imports from either of those countries 10 years from now. Given the growth profiles of many Canadian oil sands producers such as Imperial Oil (IMO:TSX; IMO:NYSE.A) and Cenovus Energy Inc. (CVE:TSX; CVE:NYSE), I think we will see material growth in the Canadian oil sands from about 1.2 million barrels (MMbbl)/day to maybe 4 MMbbl by 2022, obviously depending on permitting issues and the price of oil. I think the Keystone would have been a very good supply. Eventually, I think the Canadians will get fed up and build a pipeline to Port Rupert and send the oil sands production to Asia if the U.S. cannot find some solution to get the XL Pipeline moving forward.

TER: The differential in price for what Asians are paying could pay for shipping that oil to Asia.

BP: Yes, absolutely. And one of the things we’re seeing in Asia is that some of the biggest producers such as Indonesia are seeing flat to declining production. And China has really struggled to keep its production flat. There have been some very good offshore finds in Malaysia and Vietnam that will replace some of the declines from places like Indonesia, but on an overall basis, those are not keeping up with the growing regional demand. Numerous Asian countries, especially China, would love to tap into the Canadian oil sands. A pipeline will get built. It’s just a matter of whether it leads to the U.S. or to the west coast of Canada.

TER: You have reviewed Energy XXI (EXXI:NASDAQ) recently.

BP: It’s not in my model portfolio right now, but I was very impressed that it has been able to grow production and that the company has a material oil weighting. It has a very good mix of exploration prospects as well as development prospects. Right now, the market has really turned its back on the Gulf of Mexico producers such as Energy XXI, and it is trading at lower valuations than its onshore peers, but it is able to generate material cash flow. In the case of Energy XXI’s balance sheet, I think some investors were a little scared off by its debt levels, which I see as very manageable given the cash flows it will be receiving over the next two years and its significant material reserves that it can borrow against. I think Energy XXI has a pretty bright future. I’m going to continue to monitor the company and see how it continues to execute over the next six months or so. It has a very good mix of high-impact exploration and lower-risk development.

TER: Bill, you are writing a book now?

BP: I’m currently working on a book that looks at shale gas and what I consider to be the myth of a 100-year supply. While there is a significant amount of shale gas that will be recovered in the next decade, it is nowhere close to a 100-year supply. Shale gas is not the game changer that a lot of people think it is.

TER: What thought would you leave us with?

BP: I think the perceived risks in energy investing have been somewhat overblown given where oil prices are. The space is very volatile, but for investors who can take a longer-term approach and who can identify companies that are well-run and that have legitimate projects, there are fantastic returns available. The energy sector has been out of favor, but the fundamentals are very strong. I think investors who can position themselves in gas-weighted firms ahead of the coming rebound will be richly rewarded, but there are also fantastic returns in oil-weighted companies that will benefit mightily from triple-digit oil prices.

TER: Bill, I’ve enjoyed speaking with you.

BP: Thank you for having me.

Bill Powers is the editor of Powers Energy Investor and previously the editor of the Canadian Energy Viewpoint and US Energy Investor. He is a former money manager and has been an active investor for over 25 years. Powers has devoted the last 15 years to studying and analyzing the energy sector, driven by his desire to uncover unrecognized trends in the industry and identify outstanding opportunities for retail and institutional investors.



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Accountability in education

By Ajay Shah, on January 19th, 2012

I was shocked by Lant Pritchett’s note on the appalling performance of India’s best two states on the international PISA assessment. Actually, I was not really shocked; I didn’t expect anything else as I’ve been listening to Lant for years now. By the same token, I agree with Jishnu Das that we really don’t know much about what works in education (other than that good teaching makes a difference) and that our bean-counting of inputs into education may be completely wrong headed. From conversations with him (also over years) I surmise that the only thing we really know about what leads to more learning is that it is correlated with how many years children stay in school. What that suggests, though, is that attention be directed towards the choice of parents and students to stay in school.

In my opinion people choose to do things if it is worth it to them.  This is a common assumption for economists. While challengeable in some circumstances, does it make any sense to think that people send their children to school if they don’t think it’s worth it? If it is
compulsory: sure. With compulsion, attention of policy makers and carefully watchful observers such as Pratham should be to make sure school is worth the year of children’s attendance since people would not be able to decide for themselves. Until we see  compulsory schooling enforced, though, years of education remain a family’s choice and we have to understand how and why people make that choice.

Unless we think parents are utterly clueless about the value of education and totally incapable of telling if teachers are doing anything or their children are learning anything, the effectiveness of teaching and the amount of knowledge imparted must be a major factor in their decision as to whether school is worth it. Don’t get me wrong, I’ve met dozens of educators and education officials in India who believe parents are, indeed, clueless and such decisions should be out of their hands. But they are the very people who gave us the PISA ratings and are indeed throwbacks to the License Raj where only bureaucrats were assumed to know anything. Further, with the explosion of private schools, even in rural areas, it is laughable to think that there are so many parents who value education so little. They are willing to forego free public education in order to pay for something more worthwhile.

Which brings us to accountability.

What could parents be looking at, that makes them think school is worth it? It must be based on performance: parents don’t really see
the inputs, they mostly just see their children learn. Or not learn as is the case. So how can they translate their concern for learning into actual learning? They have to be free to pick the educational context that they see is working for them or their neighbors. That’s where accountability comes in.

A provider of any good or service is likely to be most accountable when their livelihood depends upon attracting customers. If what they provide is worth it, people will take the service, and the provider can make a living. If not, parents won’t pay and teachers won’t get paid. As of now, there is no mechanism to allow families to make that choice. There is no such compulsion for teachers to provide a service worth paying for. No doubt there are many teachers (probably most) who are doing the best they can regardless of how they are paid. But with over 24% absenteeism, large numbers of teachers observed to be doing anything but teaching, and many sub-contracting their position to under-qualified replacements at a fraction of government salaries, there is substantial room for improvement.

Further, if we are going to get more students (and, hence, teachers) into classrooms, the dedicated teachers may be the ones who are already on the job. People induced to enter the profession may not be as dedicated and, hence, need some other way to hold them accountable than internally felt professional ethics.I am an educator (of sorts) but have no opinion about what the bottleneck in children’s learning really is. Jishnu says the most successful headmasters all say different things (after good teachers – but then, don’t we judge the goodness of teachers by whether their students actually learn? It’s an output based judgment, too.) I know little of pedagogical theory. But I know just as little about the inner workings of most complex things I use — computers and the Internet, water systems, bicycles. I can tell when they work and when they don’t, though. Similarly, I know that my sons learned to read and
write, become responsible citizens and to develop and exercise critical intellectual capacities (sometimes way too critical for my
taste) even though I have no idea how they learned them. I did know that their teachers were in school almost every day and doing things that sounded like teaching to me. I did not have to be an expert on pedagogy to hold the schools completely accountable for my children’s education.

I was also fortunate enough to be able to take (or threaten to take) them out of government schools if I thought otherwise. Funding
for government schools (in the U.S.) follows enrollment, if not so directly and obviously as for private schools. So my threats about
shifting my children out of government school directly mattered to their teachers.

There is no reason why Indian parents can’t do the same. They, on average, may not have my education but after talking to hundreds of families in rural areas, tribal villages, urban slums and SC hamlets, I hear no less concern for their children’s future than I have for
mine and no less ability to tell if a teacher appears to be doing his job. They may be more capable than me since they are more likely to see the teachers themselves — I needed to ask my children.

In many rich countries, the issue of vouchers to pay for schools is emotionally charged. Historically, free compulsory public education was a result of fights between church and State (even in Japan where `church’ doesn’t quite fit — but religion and State does). Children were already attending school in high percentages and there was a fight for their hearts and minds. In rich countries currently, suggestions to provide vouchers instead of State-run schools re-kindle this old antagonism against religious instruction.

India never had this fight nor this evolution of public provision. Our view of schooling here in India was imposed based on the final result of universal free education seen in rich countries without the history from which that final result evolved.

India needn’t go through the phase of fighting over who gets to teach students who are already highly motivated to learn and have  seen learning take place. If India wants to see all children educated, she can certainly pay for the cost of education (in fact, the job can be done for much less per student is presently spent) so that families don’t have to. But the government doesn’t have to provide it directly (though government schools should be free to compete for this money if it can). The fight is the State against society (families), not against the church.

What the State can do is make as much information known to parents as possible. What should children know after how many years of school?
How do you know if your child is keeping up? How do you know what you’re paying for is worth it? As of now, this information is
certainly not given to parents. Maybe State run schools don’t want parents to know (and, unfortunately, most Indian parents will not know about PISA). And as of now, there is nothing parents (particularly poor parents) can do about it anyway.



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Logical Conclusions

By Simon Grey, on September 27th, 2011
Sometimes economists can be complete idiots:

What is the biggest single drag on the beleaguered global economy? Opponents of globalisation might point to the current crisis, which shrank the world economy by about 5%. Proponents of globalisation might point to the remaining barriers to international flows of goods and capital, which also serve to shrink the world economy by approximately 5%. That sounds like a lot.

But the truly big fish are swimming elsewhere. The world impoverishes itself much more through blocking international migration than any other single class of international policy. A modest relaxation of barriers to human mobility between countries would bring more global economic prosperity than the total elimination of all remaining policy barriers to goods trade – every tariff, every quota – plus the elimination of every last restriction on the free movement of capital. [Emphasis added.]

I’ve addressed the stupidity of the “free trade” advocates before, so I won’t do it again here.  However, I will address the problems with the concept of free labor.

First, the economic models used to demonstrate the wisdom of free labor often ignore the simple fact that the conditions facilitating trade in the first place are predicated on culture, and that allowing people from one culture to interact with the trade-oriented culture will diminish the support for the very conditions that allow for trade in the first place.  In other words, all cultures are different.  Some are pro-trade, others are not, and some are only pro-trade when the benefits are staggeringly obvious.  Expecting radically different cultures to interact with one another without also expecting a change in the cultural institutions that harbored that interaction in the first place is astonishingly stupid, and, indeed, ignorant of basic human nature.

This mindset, that the free market will be enough to ensure that all people from all cultures will behave rationally and interact peacefully with one another, is predicated on the wholly fallacious assumptions that people are inherently rational, that all cultures are equivalent, and that cultural biases and prejudices are easily overcome.  Of course, the real world differs significantly from this model.  People are not rational creatures; they are rationalizing creatures.  And, shockingly, people still hate people from other countries simply because they’re from other countries!

Economic growth is rarely (perfectly) linear and never guaranteed.  Furthermore, the conditions for growth are vast and complex, and so it is the height of arrogance to think that models that inaccurately measure a few irrelevant variables are going to make for a compelling argument.  Yet, this is precisely what economists are doing when they argue for free labor.

Second, free labor (and, come to think of it, free trade) advocates tend to ignore the very simple fact that wealth is not based on being able to buy things at lower prices.  Lower prices are the effect, not the cause.  Quite simply, economists ignore fundamental microeconomic principles, leading to this wacky macroeconomic theory.

Wealth, fundamentally, comes from producing something of value, whether for yourself or someone else.  As long as you value that which you’ve created in the quantity in which you’ve supplied it, you have created wealth.  If you create something that someone else values in the quantity in which they value it, you have created wealth.

The standard macroeconomic theory posits that people are effectively wealthier when they can consume more products at identical or lower prices.  Of course, this thinking extends to labor, with the argument being that cheaper labor enables one to produce more with less (in essence, the decreased cost of inputs means that cheaper labor translates to greater economic activity).

This argument is technically true, but irrelevant.  Lower prices as a result of cheap labor does not make consumers wealthier because consumption is, by definition, destructive since one is using up a resource.  What makes consumers wealthier is their own personal production, not lower prices.  Lower prices, in a sense, give the illusion of wealth because they make it easier for poor people to have the things that rich people once exclusively enjoyed.  Note that this is not to condemn lower prices in and of themselves, but rather to clarify that lower prices are no substitute for production.

And so, the argument made by free trade and free labor apologists is largely irrelevant.  Lower prices do not make people inherently wealthier.  Instead, they reveal how other people have become wealthier by improving their means and methods of production.  Confusing cause and effect is a fundamental error, and one that is often overlooked in this debate.

In sum, the argument for free movement of labor completely ignores human nature, as well as basic economic principles.  As such, it does not merit any further discussion, nor should it be taken seriously.



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Winners And Losers

By Dan McLaughlin, on March 16th, 2009

Life is full of uncertainty. A plane might fall on your house. You may total your car. The value of your investments may crash. But, then again, you may find valuable mineral deposits on your land. You may inherit lots of money. You may find that the old trinket you bought at a flea market is worth thousands of dollars.

People make decisions based on their assumptions about the present circumstances and expectations for the future, whether that future is the next second or decades away. People act only because they expect to be better off, in some way, emotionally or physically, by acting. Those expectations may not hold up to reality, however, because, as we have seen, life is not a sure thing. Some people win and some lose.

There seems to have been a lot of losers these days. Investors, business owners, home owners and mortgage holders are taking a collective hit in the pocketbook. It is difficult in times like this to step back and see the overall picture, which is actually a quite wonderful thing, in spite of the mess created by monetary authorities. In societies where property rights are secure and people are protected from fraud, coercion and violence, including that by politicians, free trade leads to an amazing phenomenon. Whenever two people enter into voluntary trade, both sides win. Both sides to the transaction expect to be better off. If that were not the case, the transaction would not have taken place.

At the store, the customer values the shirt more than the money used to buy it. Conversely, the seller values the money more than the shirt. At work, the employer, the buyer of labor services, values the efforts of the employee more than the money he pays. The employee, the seller of labor services, values the money more than the time and effort given up to obtain it.

Because people create value by the things they do, they can give value for value received. That is the basis for the advancement of any society. Those societies that honor property rights and voluntary trade advance at a much quicker pace than those that don’t. The expectation of gain, and the ability to benefit from it, is a powerful incentive for people to create value. The expectation of ownership encourages people to invest in processes and equipment to create value more efficiently, thus benefiting everyone.

Some see the market process as systematic exploitation, a situation where every transaction has a winner and loser. They may point to the housing market or the stock market and explain that if someone buys at a high price and sells at a low price, that seller loses and the buyer wins. In this case it is important to identify what the loss actually arises from.

Using the stock market as an example, if someone bought at the peak of the bubble, they may indeed lose half of their investment if they sell today. The decision to sell is based on present circumstances of the seller and expectations for the future. There is a risk that the market can go lower. Neither seller nor buyer can predict the unknown future. If someone buys from the seller who’s stock lost value, the buyer assumes that the market will go up. He is willing to assume the risk of the unknown, which the seller is no longer willing to bear. The loss came only from the decline in the market prices, not from the selling. The decision to sell cannot affect what happened already. The seller benefits from being relieved of the risk of further decline. The buyer benefits from assuming the possibility of turnaround and future gains. In the transaction, both sides must necessarily feel they are better off by consummating the deal.  They may regret their decision afterward, but that is because of events independent of the sale.

It is similar to totaling your car. The collision with the tree was the loss. If you make a deal with someone to buy your car, the person will pay the price of a wreck, not the price of a new car. The accident with the tree changed the present situation. Given the present reality, the decision can only be whether you are better off with the wreck than you would be with the money the buyer offers you.

The recent economic meltdown is like running into the tree.  It arose from various factors, but chief among them is the inflationary credit expansion, and the inevitable collapse that results.  Responsibility for the bubble and collapse rests squarely on the shoulders of the central banks and the fractional reserve system.  Given that the loss in market prices is a fact of life, however, trade can only benefit the participants, as it did with the owner of the wrecked car.

In every voluntary trade, if you decide to sell your car or your stock or anything else, you win. You are better off after the trade, even if it is just because you don’t have to worry about any more losses. If the buyer decides to buy, he is also better off. Subsequent events might turn him into a loser also, but at the time of the deal, he was a winner. Both sides necessarily win with honest, un-coerced, voluntary trade.



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