Enterprising Investor Forum

OIL vs S&P500 Thursday, January 22, 2009

We’re back with one of our ‘Interesting Charts’ posts! Has anyone looked at Oil performance against the S&P500 lately?

As usual, we have used the iPath Crude Oil ETF( OIL) as a proxy- for those of you that are not familiar with it:

• The investment is linked to the performance of the Goldman Sachs Crude Oil Return Index and reflects the returns that are potentially available through an unleveraged investment in the futures contacts comprising the index plus the Treasury Bill rate of interest that could be earned on funds committed to the trading of the underlying contracts. The index is derived from the West Texas Intermediate (WTI) crude oil futures contract traded on the New York Mercantile Exchange. The fund is nondiversified.

Here is the first chart that shows the 1 year performance:

No surprise here but it is still interesting too see how OIL moved to +60% and then dropped like a rock to -60%… talk about wealth creationg and destruction!

However, the 2 year performance shows a very different picture, with both Oil and the S&P ending up together:

Remember that time horizons are of critical importance when constructing your investment strategy and projecting expected returns… a lot of things can happen in the short term but if you are a long-term investor, you should try and tune out all the noise.