Saturday, June 5, 2010

Investing in BP after the spill

I bought BP shares this past week. In some ways the decision was dead easy, in other ways I must admit that I am still questioning my choice- but not for the regular reasons. Let me explain to you first why it was an easy decision (my rational side) and then lets talk about why it was a tough decision (let's call it my emotional side).

Buying BP was an easy decision

At my target price BP shares would pay a 9.5% dividend, with a great price to book, price to sales, and P/E to name a few stats. They are undoubtedly a solid company with great assets and leadership that has performed well in the past. Even if the dividend was cut in half I would still be content to hold this as a long term investment.
The media has made light of the 'we are going to nail BP to the wall' attitude that the Obama administration has adopted over the last few weeks, but lets look at the facts. The sinking of the Exxon Valdez in 1989 took 20 years to reach the final court settlement of a paltry $500M, plus the estimated $2B that Exxon spent on cleanup and legal costs.  While times have certainly changed in the last 20 years the corporate laws haven't. Don't get me wrong I am quite certain BP will have to pay but there are many factors to the case:
  • There are three other companies involved with the rig that will likely be forced to carry some degree of responsibility.
  • BP has already come forward with $1B to start the cleanup so isn't cash strapped.
  • It will likely take another 5 years at minimum before BP has to pay a dime so they have plenty of time to put aside a settlement fund.
To summarize, despite the media's spin it isn't too likely BP is going to go bankrupt, that their market is going to disappear, or that they are going to be the target of a hostile takeover. Based on this reality and the strong company that is standing here buying BP was an easy decision.

Buying BP was a hard decision

I don't have a ton of moral rules when it comes to investing but there are certain stocks I simply am not interested in owning at any price- such as those directly involved with tobacco, or the production of weapons.  I just don't feel comfortable becoming directly involved and profiting from these businesses. BP is an oil based business, this product has been central to wars, genocide, supporting despots, a whole lithergy of negativity. This and, of course, they are the company who's employees appear by early accounts to be primarily responsible for the current destruction occurring in the Gulf of Mexico. This all leaves me feeling a bit uncomfortable with the whole prospect of direct investment in BP.

I have commented before that investing is often a battle been the investor's rational and irrational sides. My hope is that BP continues to be a strong and profitable company, I also hope though that BP takes the task of cleaning up the mess it has made and undoing the harm it has caused just as seriously. How did you feel about investing in BP?

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  1. I think BP is a great company and has done and is doing everything it can to clean up the mess that it and its partners have created. I hope they can pull through the next few months, which will be the toughest of its existence. I think their a great buy at these levels and will turn out to be a great investment. Jay

  2. I appreciate your viewpoint on economics. What are your views on taxing the wealthy, or cutting their tax to stimulate the economy?


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