Houston reader R.C. writes: "I teach chemistry in a Houston college. For 10 years I have been telling my students there is a good chance..."

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Houston reader R.C. writes: “I teach chemistry in a Houston college. For 10 years I have been telling my students there is a good chance the world would have a major energy crisis during their lifetime, and we could run out of oil.

“I have always had 50 percent of my retirement money in Vanguard Energy, and I have never felt it was a poor investment. Do you think we are in an ‘oil bubble,’ like the dot-com crash? Can you think of any situation, within reason, that would result in a major setback in energy as compared to the rest of the stock market? “I know that I am being somewhat foolish in not diversifying since I am about seven years away from retirement.”

The best new book about energy is “Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy” (Wiley, $25). While others have written about the idea of “peak oil,” Houston banker Matt Simmons tells us about our dependence on a handful of Saudi oil fields, the concentration of global production and the danger that Saudi production has already peaked.

Then, as Boone Pickens says, we could be in a losing scramble simply to replace declining production in a world of rising demand.

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There is a big difference, however, between an investment idea and actual results. Consider the past: Of the seven energy/natural resources-oriented funds that have 20-year track records, Vanguard Energy is the only one that has beaten the S&P 500 over the period. If you had invested in Vanguard Energy in June 1985 and held it through May 2005, your annualized return would have been 14.13 percent, 1.77 percent a year better than the S&P 500.

US Global Natural Resources trailed the S&P 500 over that period by 4.14 percent; AIM Energy by 1.96 percent; Fidelity Select Energy by 1.73 percent; T. Rowe Price New Era by 0.44 percent; Putnam Global Natural Resources A shares by 2.63 percent; and Morgan Stanley Natural Resources B shares by 3.16 percent. (All figures from Morningstar Principia.)

In fairness, I should note that only a handful of managed funds of any kind have beaten the S&P 500 index over the same period, so it isn’t a big surprise that most of the energy/natural-resources funds trailed the broad index.

Whatever you think about our energy future, 50 percent is too big of a commitment. Safety is in diversification, not concentration.

Unlike the dot-com bubble, oil companies have real assets, real earnings and solid dividends, and below-market multiples of earnings, book value and cash flow.

They look like a cautious, value-oriented investment — which is why I bought shares of many energy companies to create a kind of reserves-based index.

An energy development of Internet proportions could change the prospects of oil prices. That development could be a breakthrough in efficient solar power, successful fusion power, sudden acceptance of nuclear power, or some development that would lead to a dramatic reduction in hydrocarbon demand.

Is it likely? I hope so, but I’m not holding my breath.

Questions about personal finance and investments may be sent to Scott Burns at The Dallas Morning News, P.O. Box 655237, Dallas, TX 75265; by fax at 214-977-8776; or by e-mail at scott@scottburns.com. Questions of general interest will be answered in future columns.