Andrea Montero is a Capital Group fixed income analyst who covers the energy sector. She holds an MBA from Harvard Business School, a master’s in finance from the University of Florida’s Hough Graduate School of Business and a bachelor’s degree in finance from the University of Florida. We asked Andrea about her appetite for risk and how today’s volatile geopolitics are affecting her investment approach.

If you’d like to hear more from this conversation, we invite you to watch or listen to Andrea’s appearance on the Conversations with Mike Gitlin podcast on Apple Podcasts, Spotify or YouTube.

I’ve heard you describe yourself as a “process purist.” What is a “process purist” and why do you describe yourself that way?

I acknowledge that outcomes have a lot of weight and matter, but for me the process behind those outcomes really matters. It’s not just about results, but the quality of the decisions behind those results. If you gave me two identical choices, I’m not indifferent between them — I would always try to spend the extra time identifying which one was the result of a better, stronger process. That matters to me a lot.

With that process in mind, how do you know when a risk is worth taking?

I try to assess risks in four dimensions to contextualize them: the level of conviction, the margin of safety, the time horizon and the asymmetry of outcomes.

The higher the margin of safety, the more room for error. You could pair a lower conviction idea with a higher margin of safety investment, and that could make a risk worth taking. The third piece is time horizon — considering if the risk changes the investment thesis if applied over a short timeframe or a longer timeframe. You often find that if you have a longer timeframe, you can make the risk more palatable and be more prone to take it. And finally, the more positive the asymmetry of outcomes, the more likely you are to take it.

Can you give us an example of a time when you had to push yourself outside your traditional comfort zone and how it played out?

During the COVID time period, I remember it so clearly, March 8, 2020. We were getting indications that the Organization of Petroleum Exporting Countries (OPEC), which is the oil group that supports the market, was not really looking to support the market at the time because the shock was so intense. And I remember writing this note called, “Brace for impact, oil prices are about to take a nosedive.” And, man, did that really foresee what was about to happen.

But I say this because it was a Sunday morning when this all came together for me. Monday morning, I came to the office, and the market was open, and oil was falling. And the hardest thing was to decide to sell at that time. It doesn’t come naturally for me to sell what seems like a losing investment at the time. You want to apply that long-term timeframe and try to hold through volatility. But because I had some sense that my thesis was broken in terms of where oil prices were eventually going to be, it just made sense to sell.

What are you thinking about in the energy space today?

Two key structural themes and two cyclical ones: On the structural side, I really wrestle with what we call the energy trilemma, which is a phrase for the tradeoffs between energy security, energy affordability and energy sustainability. Understanding which regions prioritize which pillars and when is a really important way for me to assess long-term opportunities and risks.

The other structural theme is the interplay between technology and geology. You can think about geology as where the resource is. It’s finite, it’s depleting and it’s fixed. And technology is how and whether we can extract that resource. Technology evolves, and so the questions become, can we do it safely, can we do it economically?

I’m also thinking about two cyclical themes. One has to do with OPEC policy. For the last two years, OPEC has been supporting the oil markets by withholding supply, but now it’s starting to release volumes back to the market and that creates the risk of potentially oversupplying the oil markets and driving prices lower. That’s keeping me busy these days.

And, finally, geopolitics. It’s unpredictable, but it has an important influence on where oil and gas prices can go. And as you know, there are a lot of fires concurrently going — Russia-Ukraine, Middle East tensions, the U.S.’s strained relationship with China.

Do you have to have a fundamental view on where oil prices will be three to five years from now for your thesis?

It’s very important, but the challenge is that it’s hard to get it right. It seldom goes in a straight line and things happen. Part of the core principles with which I invest is to think probabilistically. Sometimes the range of outcomes seems more narrow, and in times like today where there’s higher uncertainty on policy, more geopolitical tensions, the path of outcomes increases. That, for me, means it requires a higher margin of safety.