Topic: The RAWK Investment/Trading Thread

[JP-65]

Not an expert by any means, but since BP's share price is down heavily today would now be the time to invest in them, they are bound to sort out the leak eventually and when it does, since they are an Oil company, their share price would inevitably go back to pre Spil levels

Not if their litigation exposure puts them into bankruptcy...not saying it does, but that risk exists.

[El Campeador]

Not if their litigation exposure puts them into bankruptcy...not saying it does, but that risk exists.

I've taken that risk, and bought my last lot this morning pre-market. The cost to BP so far has been north of a billion dollars, but they make about 25 billion a year. The selloff is overdone methinks, and just the mere plugging up of the hole should give BP stock some tailwind.

I'm now going to sit tight for a couple of years and collect dividends.

[JP-65]

I've taken that risk, and bought my last lot this morning pre-market. The cost to BP so far has been north of a billion dollars, but they make about 25 billion a year. The selloff is overdone methinks, and just the mere plugging up of the hole should give BP stock some tailwind.

I'm now going to sit tight for a couple of years and collect dividends.

I was reading this morning that some think the hole is not "pluggable", there is not any expertise for this as it's never had to be done before, and it will only be able to be plugged when the pressure dissipates.
BP knows this and all the "efforts" are for public consumption.

You may have a great long term trade there, but who knows?

[El Campeador]

I was reading this morning that some think the hole is not "pluggable", there is not any expertise for this as it's never had to be done before, and it will only be able to be plugged when the pressure dissipates.
BP knows this and all the "efforts" are for public consumption.

I can live with that.

You may have a great long term trade there, but who knows?

I like to think of it as an investment.

[JP-65]

FYI - BP Amoco (BP) already said they've spent over $900M already on this spill. This is from BP on their website:
The cost of the response to date amounts to about $930 million, including the cost of the spill response, containment, relief well drilling, grants to the Gulf states, claims paid and federal costs. It is too early to quantify other potential costs and liabilities associated with the incident.

Furthemore, analysts from UBS was out this morning and revised their estimates raising to a projected $20 billion the total cleanup cost, litigation costs, and the rest, up from a prior view of roughly $5 billion.

[El Campeador]

FYI - BP Amoco (BP) already said they've spent over $900M already on this spill. This is from BP on their website:
The cost of the response to date amounts to about $930 million, including the cost of the spill response, containment, relief well drilling, grants to the Gulf states, claims paid and federal costs. It is too early to quantify other potential costs and liabilities associated with the incident.

Furthemore, analysts from UBS was out this morning and revised their estimates raising to a projected $20 billion the total cleanup cost, litigation costs, and the rest, up from a prior view of roughly $5 billion.

Right - and the market cap wiped off just this morning was $30b.

[JP-65]

Here's some thoughts:

'This has, of course, raised the contrarian question of when do you begin to buy shares of BP and Transocean? After all, BP has fallen by a third and Transocean by almost half. A lot of money was made in the aftermath of the Exxon Valdez years ago, when that stock fell sharply after its tanker spilled more than 10 million gallons of oil into Prince William Sound. It must be time to buy the stocks right?
In the case of BP, I think the answer is a definitive no. This is not a tanker with a defined cargo. No one has a clue how much oil could be spilled into the Gulf of Mexico over the next few months until the company actually contains the flow. The ultimate liability is unknown and unknowable at this point. Before this over, it is a safe bet that a horde of lawyers, government officials and Congress will be involved in assessing blame and seeking damages. The clean-up costs will be enormous, and the company is going to suffer a loss of business in the U.S. because of the spill. In spite of that, the stock is not particularly cheap. The shares still trade above book value at the current quote, and given the magnitude of problems facing the company, that seems high to me. The earnings multiples are pointless right now because we cannot begin to estimate the damage caused to the top and bottom lines by eventual costs and damages. When the stock gets close to half of book, I will revisit the idea, but until then, there is just too much risk here for me.'

'I have to imagine the lawsuits against BP Amoco (BP) and TransOcean (RIG) will reached the Billionss (the extra 's' is for Sue). Add on that the current cost will clip $1B any day now, along with Federal fines and penalties. Then, will we see criminal charges. Unfortunately, it can't be ruled out yet. If I want yield, I'll take 6.75% and go with Enterprise Product Parnters (EPD) or something along those lines. BP has an 8% yield for a very big reason right now, and it isn't a good one.

'I believe both companies could wind up in receivership before this is over. Right now, the spill has only hit places where poor folks live. Even so they're still going to cut through many layers of reinsurance coverage.
What happens when it washes up in Sarasota, Longboat Key or Palm Beach? What happens if a storm surge carries the oil into MA, AL or MS drinking water?'

[El Campeador]

BP has an 8% 9% and rising yield for a very big reason right now, and it isn't a good one.

I know the risk. I've limited portfolio exposure to it, but I still think this will be one of those very long term winners.

Thanks for the heads up, JP.

[JP-65]

I know the risk. I've limited portfolio exposure to it, but I still think this will be one of those very long term winners.

Thanks for the heads up, JP.

Could be a great one, but who knows, too many unknowns.  Good luck on it though.

[JP-65]

Gulp

[El Campeador]

Duly noted. I have (overpriced) puts in place.

[JP-65]

Duly noted. I have (overpriced) puts in place.

May not be (overpriced) at the end of the day (or BP's day in this case).

Lots of UK pensioners are going to get a serious hit to their dividend income, and capital, sadly.

[El Campeador]

May not be (overpriced) at the end of the day (or BP's day in this case).

Lots of UK pensioners are going to get a serious hit to their dividend income, and capital, sadly.

You're talking like the dividend suspension/cut is a foregone conclusion?

[JP-65]

You're talking like the dividend suspension/cut is a foregone conclusion?

I think it will be, although there'll be hell to pay in terms of a big bust up between the UK & US over it!

Crazy few weeks/days eh?  Think today was just a bounce in a continuing downtrend, but who knows?  Still think it's more likely we break down through 1040 then break out...Key is whether the bulls can get through the 200 dma at around 1105-1110.

[El Campeador]

I think it will be, although there'll be hell to pay in terms of a big bust up between the UK & US over it!

BP made 6 billion in the first quarter. They also have about 8 billion in cash, and 60 billion in current assets. Surely there's enough cash to both pay the dividend and also pay for damages?

Crazy few weeks/days eh?  Think today was just a bounce in a continuing downtrend, but who knows?  Still think it's more likely we break down through 1040 then break out...Key is whether the bulls can get through the 200 dma at around 1105-1110.

Aye. Last week's close was scary. All eyes on the rebound now; if there's not enough gas, we're going back down in a hurry.

[JP-65]

BP made 6 billion in the first quarter. They also have about 8 billion in cash, and 60 billion in current assets. Surely there's enough cash to both pay the dividend and also pay for damages?

Aye. Last week's close was scary. All eyes on the rebound now; if there's not enough gas, we're going back down in a hurry.

Well, at the close yesterday they were below net book.  I'd be very careful on this one, it's a minefield.

[BazC]

I don't know why but I love 'listening' in to your discussions, it's a world that I'm not part of but probably because of that, I find it totally fascinating. Hope you don't mind.

Haha, I love listening to them as well. They normally agree so this bit of debate is interesting. Don't mind us El C/JP 

[JP-65]

The more the merrier, especially when it's 2 excellent posters like you fine gentlemen

In my early days of trading I used to take on risks like El C has done on this one, but have stopped doing this since I got my head handed to me too many times.

[JP-65]

From Daniel Dicker, who's been in the financial end of the oil & gas business for over 20 years:

Daniel Dicker
BP
6/11/2010 6:14 AM EDT

BP - go to zero? No - they have too many resources and will break-up/get bought-up long before then. Pensioners? they're toast, will not matter a whit in the coming vulture fight to eat every piece of this company and pick over the remains
And why should anyone protect BP based on a backhanded argument of silver-haired ladies from Colchester? an unfathomable Fifty THOUSAND barrels of oil A DAY of filth is spewing out of their pipe in the sea floor

I said on CNBC yesterday that BP alone now will represent everything that's wrong with American energy policy: profligate fuel use, regulatory laxity, failures at Kyoto and Stockholm, ancient refining infrastructures, 110 pound housewives driving Hummers and Denalis, slow motion toward Nat gas and alternative incentives --- EVERYTHING

No company can survive that -- I don't care how much money they make. Hell, they've poisoned the Gulf of Mexico -- no company SHOULD be able to survive that.

I've never in my life felt this level of sadness and outrage. Having been in the oil business, even if only on the financial end, I still feel connected in a small way. And I'm mad. I've got my pitchfork and torch at the ready, too.....

[Cusamano]

Here is an interesting website.

It shows the portfolios of some of the wealthiest people and what they invest in.

http://www.gurufocus.com/holdings.php

[JP-65]

BTW, watch the euro/US$ today, it's bumping up against resistance at $1.215 (currently at $1.2135), if it breaks above resistance, the US markets are going to have another good upside day, with the potential to get through the 1107-1110 resistance level I mentioned above. 

Get through there and we're on the way back to 1175, especially is BP can get its act together on the "leak".

[JP-65]

It's trying hard, got there and rejected, it's going to be an interesting day!

[JP-65]

Another interesting view on BP, responding to Dicker above:

Alan Farley
BP
6/11/2010 8:12 AM EDT

Dan, thanks for your valued input.
Wouldn't a breakup/buyout be nearly impossible until a final damage figure or liability cap is placed on the incident? Some class actions will be in the courts for ten years or more. Then, if health problems (fumes, food chain, cancers) are alleged/supported, add another 10 years at least.

Sick care givers from 9/11 (9-years ago) are just now in the settlement process. And that was a "1-day" event.

Just want to add, I'm not just feeling around in the dark here. I spent 20 years in commercial claims management before going out full time as a trader in the mid 1990s. This is certain to bypass asbestos as the biggest tort in US history.

[JP-65]

Another good one

Timothy Collins
BP
6/11/2010 8:27 AM EDT

an estimate from Goldman Sachs analysts say that it will cost $40,000 per barrel for clean-up, litigation and other costs related to the spill, which at 40,000 barrels per day puts potential liability at $80B for BP (BP). At 30,000 barrels per day, now believed to be a very credible estimate, BP may be looking at $60B in liability. At the high end of 50,000 barrels per day, we are looking at $100B.
Right now, this is just a casino stock. I still believe the future dividends will be reduced, if not cut altogether. Furthermore, with leak numbers seemingly increasing in leaps and bounds with each new day any liability estimate is just a wild guess. Lastly, they still haven't stopped the leak. There are still two more months of this. Nearly 200 lawsuits are already filed. And no one seems to be talking about the fact that this hurricane season is expected to be bad with 5-6 major storms entering the Gulf. And people want to buy this stock? Casino. Pure casino.


Futures, and the euro just crashed on poor retail sales numbers (euro at $1.208, what's it got to do with US retail numbers?)

[El Campeador]

JP - Wednesday's BP action looks rather like selling exhaustion? I'm feeling a lot better about this after yesterday and the 5% premarket rise today.

Like I said, I'm holding this for a long time.

[JP-65]

JP - Wednesday's BP action looks rather like selling exhaustion? I'm feeling a lot better about this after yesterday and the 5% premarket rise today.

Like I said, I'm holding this for a long time.

Or a dead cat bounce

As I said, strange times indeed, trying to navigate these shoals is increasingly difficult, and exhausting!

[El Campeador]

Or a dead cat bounce

As I said, strange times indeed, trying to navigate these shoals is increasingly difficult, and exhausting!

Certainly.

But I wasn't talking about the bounce. I was talking about the selloff. A lot of times, a day like Wednesday shakes out everyone who was ever going to sell the stock over the bad news.

Anyways, it's too small a part of the portfolio to spend too much time tracking. If I'm right, I can pay for the wine in 2020

[El Campeador]

I'm back to watching Netflix. I sold at $118.5 before going on vacation, and it dropped to as low as $90. Look what it's doing now.

[JP-65]

I'm back to watching Netflix. I sold at $118.5 before going on vacation, and it dropped to as low as $90. Look what it's doing now.

The IPhone announcement gave it the goose!

[El Campeador]

The IPhone announcement gave it the goose!

Yep.

I'm waiting for a pullback to the 50DMA to hop back in. The options contracts are so expensive, I think it's screaming for a covered call. I could knock off $20 a share from the purchase price if it doesn't expire in ITM, or make almost $30 if I am exercised.

[liamobrien]

BP dividend cut. Disaster. There was money to be made from going short over long..

[El Campeador]

BP dividend cut. Disaster. There was money to be made from going short over long..

It'd already been priced in. I released my put Wednesday morning before the announcement. Even though my stock is down 18%, I've made back about 12.5% of that on the put option. Now I just wait for about 20 years, and collect divis.

[Rococo]

Would anyone be able to point me in the right direction of the very basics of investment (book or website)?  I have to admit, I'm starting from very very limited knowledge but would really like to learn some more.

[El Campeador]

Would anyone be able to point me in the right direction of the very basics of investment (book or website)?  I have to admit, I'm starting from very very limited knowledge but would really like to learn some more.

Need some more info.

Like your age, first, and your goal. Are you saving for retirement? Are you looking for a house? Are you looking for a quick buck? Or are you preparing for a class? How much disposable income do you have to invest with, meaning, how much do you have or will have every month (or lump sum) after all your bills are paid?

You don't even have to learn about investing to invest. There are reputable full service brokers who can take care of it for you.

Depending on the answers to these questions, the direction/book/websites I would recommend change. The acquisition of any asset is an investment - house, jewelry, stocks etc. There a fellow on here - Gus - who invests in wine. All depends on your goal and knowledge.

[El Campeador]

I'm back to watching Netflix. I sold at $118.5 before going on vacation, and it dropped to as low as $90. Look what it's doing now.

Still watching. Really want to hop back aboard, but I'm going to wait after options expiration Friday.

[CF999]

Just reading through this thread and came across www.bullbearings.co.uk. Have been looking for a good virtual trader for a while now and this looks okay.

Cheers

[Rococo]

Need some more info.

Thanks and yes, I was a bit vague!

Ok, I'm in my mid 30s and have done ok at work over the last few years.  Any pay rises I've had, I've spent on getting rid of my debts, all of which should now be paid off in the next few months.  This means that I'll have about £4-500 additional free cash per month at the end of the year.  I've also quit smoking which saves me about £150 per month (madness when you see it written down like that!).

My concern has always been that I'll just adapt my living and wont notice the additional money I have spare.

My thoughts have always been that I'll use that extra money to overpay on my mortgage and get a decent savings account going.  The reason for this is that I think if I lost my job I'd be a bit exposed financially.  The other reason is that I've thought that overpaying my mortgage is a decent long term investment in that I'll be saving on future interest payments.

My goals are - to improve my long term financial security and to make my additional free cash go as far as possible.

I'd like to find out about investing in shares.  The reason for this is both my above options are fairly 'safe'.  I'd be keen to look into the risk involved with shares and the potential benefits of investing in shares.  If it is something I decide to do then I'd like to understand whether it's better to invest a bit each month or save a lump sum and invest that.

Sorry if I'm going on here but I really am starting from a point of very little knowledge!!

Your point about Gus and his wine is an interesting one.  I think I'll look into this out of interest as much as anything though am not sure I'd be able to resist drinking it!

[El Campeador]

Phantom,

Sorry it's taken a while to get back to you. Thanks for the info; it sounds like you arrived at the "I need to learn about investing" conclusion in the correct way.

I'll start out by saying that while I have a degree in finance, I am in no way, shape or form qualified or licensed to give you investing advice.

Right now that's out the way - before you start investing -

- You should have at least a six month float in a liquid savings account (in case you get sick, lose you job, have a "life event")
- You should have no debt (most debt carries an annual interest cost of more than what you will likely earn investing)
- You should maximize any tax-free retirement savings opportunities (most likely you'll be investing this money too, but you need to minimize taxable income before putting money in a taxable trading account. Most companies here in the US offer retirement investment plans for their employees to encourage investing. You should start with an equivalent to those, and pick the maximum percentage you are offered from each paycheck. It forces you to save tax-free.
- You should set measurable goals.
- Outside of tax free retirement accounts, you should save up some disposable capital to start investing with - disposable in this sense not meaning "I can throw this money away" but more "I will suffer minimum adverse financial impact if I were to lose this money".
- You should start with broad-based funds, like Dow Jones or S&P index funds until you feel comfortable you know what your money is buying, and the mechanics of how it buys it.
- You should have a set investing schedule that buys your chosen investments at set times, thereby averaging over long periods.
- Once you feel comfortable with the basic notion of money leaving your pocket and going into a few stock shares or mutual funds that grow, you may expand into areas that you know - if you're in technology, you may buy software shares, if you work in retail, maybe you know the next hot clothing company, if you work in wine, like Gus, you invest in wine.

The idea is to build a piechart over time with lots of balanced slices, that represent broad investment vehicles like shares, bonds, funds, and cash which give you exposure to the economy as a whole.

As for your mortgage, I'm not sure about the effects of overpaying. It depends on your interest rate, what you're paying to principal and interest each month etc. In theory, you should pay down your debt first, but if you're paying 3% on your mortgage, and can make 6% elsewhere for instance, there are times when that may not work exactly the way it appears.

Finally, books.  Barron's Guide to Making Investment Decisions is dated - ten years old - but that is a good thing, because it covers timeless principles while weeding out the day trading fads of the last decade, so you don't pick up any bad habits at the go.

[Rococo]

Thanks very much for that.  I think you're right - I had previously been thought 3 months worth of savings was sufficient, but 6 would make more sense.  I think that's what I'll focus on in the short term to make sure I have the foundations right.

Whilst I'm doing this I'll have a look at that book you suggested and try to learn about these broad based funds.  Just doing a quick search about these, there seems to be a fair bit of info out there.  I think there's a long way to go before I need to actually invest some money so I should have plenty of time for research.

I guess my mortgage idea was that if I pay £1000 now, then that equates to £1,000 + 20 years of interest payments.  I probably need to re-think that one or just not do it 'til I have my savings right.

Thanks again for your advice - quite a bit there for me to think about!

[El Campeador]

Thanks very much for that.  I think you're right - I had previously been thought 3 months worth of savings was sufficient, but 6 would make more sense.  I think that's what I'll focus on in the short term to make sure I have the foundations right.

Six months makes more sense, because by definition, a "life event" is gonna be scarring to the wallet. The more cushion the better, although you have to be wary after you save it up that the crooked bankers aren't giving much in the way of interest. I myself have parked quite a lot of dosh into the VMV - a Massachusetts municipal bond fund that pays 7.5% tax free, because I can't bear the thought of getting 0.5% on my money that the banker is making 5-8% on.

Whilst I'm doing this I'll have a look at that book you suggested and try to learn about these broad based funds.  Just doing a quick search about these, there seems to be a fair bit of info out there.  I think there's a long way to go before I need to actually invest some money so I should have plenty of time for research.

Like I suggested, if you start broadbased, you can (perversely) narrow down your choices. If you start looking around for the next great drilling company, you're gonna have waaaay too many options. The aim is to understand the market before you jump off the deep end.

I guess my mortgage idea was that if I pay £1000 now, then that equates to £1,000 + 20 years of interest payments.  I probably need to re-think that one or just not do it 'til I have my savings right.

Like I said, in theory yes, you should pay down debt first. But look at it this way. You have a finite amount of years on this earth, and the mortgage is gonna be the longest debt you're carrying out of all of them. If it takes you 25 years of concentrating on paying only the mortgage off, you're not going to have anything else growing over that period of time.  Worse, imagine you only pay your mortgage, and then just as you pay it off, something happens that severely impacts that investment. You've all your eggs in one house, and that's not good. Better to plant some seeds elsewhere at the same time.

Thanks again for your advice - quite a bit there for me to think about!

No problem. Figure it out as you go along, I only tried to paint a very high level picture. Obviously there are many more details to this. One last thing - I'd be wary of "noise" - we live in a 24 hour news cycle, and fuckwits abound with all sorts of schemes and catchy phrases. Try not to subscribe to any one "guru" or website, and definitely ignore commoner comments on websites and forums (obviously that doesn't apply to myself, JP-65 and Baz    )