Energy Prospectus

Dan, I just took out my magnifying glass and re-read your holdings. I was surprised about some of the names (sdrl, for instance). Why that? More importantly, I noticed that more than 5 names on the Sweet 16 list are missing from your holdings; ditto some small-cap portfolio stocks as well. I thought that these two groups of stocks along with the mlp portfolio were the first choices among purchases. Am I wrong? Most of us cannot hold as many names as you. Should we use your portfolio as a guide or the sample portfolios? Why does your portfolio not mirror the sample portfolios? Perhaps you should create a blended portfolio of your top picks in all three categories because I am confused. Lot's of questions that you may have answered before, but not since I joined. Thx.

Each of us must choose what is best for our own portfolios. The bulk of my money is in the High Yield Income Portfolio.

I like all of the companies in our three model portfolios, or they wouldn't be in them. The fact that I don't own some of them means nothing. I'd love to own all of them. My Top Picks for growth are the Sweet 16. As I point out in the newsletter, small-cap growth companies have higher risk but also have more upside. They tend to be more dependent on a few projects. If those projects pan out, they can grow production and reserves quickly. GST is a great example, I think the stock was under $2.00 when I added it to our Small-Cap Growth Portfolio.

Most of the Sweet 16 are what I call "Core Holding" quality. These are companies with double digit production and proven reserve growth locked in for many years. Oil and gas prices are going to flop around, but over time they are definitely trending higher. Take a look at the 5-year chart for oil prices on our website. Each dip in prices is short-lived and followed by a leg up. If you hold E&P companies with steady proven reserve growth, eventually you will be rewarded.

One thing working against the really small companies today is that the cost to get into the large shale plays (where well costs are $10 million) is so high it is really a barrier to entry for them. This is a very capital intensive business.

The only reason that I list what I own in each newsletter is because I got tied of answering all the e-mails asking what I owned. None of you should think of it as an encouragement to buy them. If fact, over the years what I don't own seems to do better.

Thx. One thing: Why do you own sdrl? I am very familiar with the company, and it has been a falling knife. I got out at $30 after watching it go up to $40. When the company said all of 2015 and into 2016 was going to be lousy, that really spooked the mkt. Just curious, if you don't mind me asking. Thx.

Very small stake in Seadrill.