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Where angels fear to tread…

June 1, 2010

Rocky’s Daughter called the office and said,  “Dad, I want to buy some BP stock.”

Rocky: “I see that it’s down 15% today on their continued failure to stem the catastrophic leak. And it’s lost about $65 Billion since the story began. What are you thinking?”

Daughter: “I’m thinking that they will eventually get this thing under control, and while the damage may run into the billions, you taught me to be brave when others are fearful — and to be fearful when others are brave.”

Rocky: “Yes. I did teach you that. But sometimes it’s RIGHT to be fearful. Why not buy some Apple stock? It just keeps going up…”

Daughter: “No!!! I don’t want to go near Apple. It’s a fad. It’s a cult. ”

Rocky: “But BP really could go bankrupt on this situation. How do we analyze that? And, why should today be THE low?”

Daughter: “I want to  buy 10 shares ($370) right now. And we’ll revisit it in a few weeks. If the stock goes a lot lower with no new developments, I might buy a little bit more. But it’s hard to imagine how the news could be worse. Please also buy some Chevron stock for diversification in the sector.”

Rocky: “Ok. You are brave!”

[Disclosure: Rocky has no position in BP shares. However, his daughter now owns 10 shares of BP at a cost of $37.  Since May 1st, BP’s share price has lost about $65 Billion (27%) in value, and during the same period, Chevron’s share price has lost about 12%. It is not entirely crazy to think the market may be close to discounting the possibility that the leak will continue until the relief wells are finished at the end of the summer. However, there is also the possibility that the leak could continue for years;  the government taxes the oil companies into oblivion; and BP faces criminal/civil penalties.]

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  1. ld
    June 1, 2010 at 4:31 pm

    Regarding the last sentence, wouldn’t that counterbalance the stimulation? Taxing the cigarette company doesn’t kill the economy. Taxing the oil company can. I don’t know anything about this technology but if I must speculate, either the well will run dry or BP will run dry before this is over. I’ll let shrewd speculators like Rocky’s daughter bet on this one.

    Regarding Apple, I finally bought one recently (after getting sick of Windows and Linux). This is a great system – order of magnitude better than others. With Apple the battle of flash vs. HTML5 and other open standards is very interesting and could determine the future of all internet/computer technologies. So, even that’s not a sure bet but then again nothing ever is.

    When my kids call me some day with a question like that, it’ll be one of the best days of my life. Congratulations!!! 🙂

  2. June 1, 2010 at 6:19 pm

    LD: You are right about the taxes. The only winners in this entire disaster are the Saudis and other foreign oil exporters, who cannot be displeased by the prospect that there will be no offshore US drilling for a long time.

    As for Rocky’s Daughter’s BP stock — right now its value is about the cost of an IPad. If, in three years, it can pay for a Mac, then it will be a success. Alternatively, if it’s worth a Apple Shuffle, then it was a failure.

  3. masteroftheuniverse
    June 2, 2010 at 1:20 pm

    Your daughter uses words like revisit…..you are wise to let her put on the trade.

  4. June 5, 2010 at 11:33 am

    We have some “dirty” oil for sale. Or is it now just oil. 🙂

  5. allocator
    June 6, 2010 at 10:37 pm

    All the best to Rocky’s daughter on that one. I personally don’t like the risk-reward because of the overall global economic backdrop, but I like her thought process – looking for a disconnect between appearances and reality, and backing her analysis with concrete action. Good for her.

    And I’m not saying she won’t make money on the trade or investment. 🙂
    I have my suspicions, but I sure as heck don’t know which way the oil or stock markets are going to go from here. 🙂

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