Category Archives: Investments

Funneling The BP Oil, Buying The Stock Again

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Okay, I bought back into the BP stock again.

Why?

First, the stock went down 10% from where I cashed out.  While 10% isn’t quite the percentage that I was hoping to buy back in at, I tried to gauge how far the stocks would go down.  How did I do this, you might ask?  I found something as close as possible to this disaster, and that was the Exxon’s “Valdez oil spill“.  Exxon’s stock went down a little, but not much more than a few percentage point.  What about the Exxon dividend?  Was it affected…?  Nope, Exxon continued to pay it out.

Second, sometimes a company or a person gets lucky. So far, nature has worked in BP’s favor.  The winds are blowing in the right way, the waves have settled.  More than just BP is participating in the cleanup, many other companies and countries have offered to help.  While BP has had good luck to date, that doesn’t guarantee anything, but it’s still encouraging, hopefully BP and the US’s luck holds out.

Third, they are trying a funneling system that if BP can get it into place can stop or drastically reduce the continued outflow of oil into the ocean.  The funneling system has been done in shallower waters, so whether it will work or not a mile down in the ocean is still in question.

So my decision to buy back into the stock, like my decision to sell out of the stock is based on a gamble.  Is this good investing?  No, but I’m only playing with money that I can afford to lose (but, I really don’t think BP will go under…).

Anyway, I really hope that the funneling system works!  If not, it will be horrible for Louisiana, Florida and the entire Gulf of Mexico.

-MR

UPDATE: Wow, the DOW fell 1000 points in practically less than 1 hour!  It ended the day down 347.80, but wow.  Apparently, there was a glitch in the system.  One stock went from $40 all the way down to 1 cent, then back up to almost $40.

UPDATE:  (5/10/2010) Yes, the funnel failed, so I jumped back out of BP.  Enough oil has spilled out that I’ve decided to lick my wounds (sort of, after all I still ended with a gain because I’ve been in the stock for at least a year) and give up on BP.  I may sit in cash for a while until I find something else good to invest in!  The BP mess is so bad that I decided not to jump back into the stock.

BP Oil Spill, Selling On Bad News

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Yes, I owned BP stock!  It was up pretty big this years, until now.  I got a small gain, but not near as big of one that I would have if I sold the first day.

Why didn’t I sell my position in the stock on the first day for the new of the oil spill/leak?

  • I thought the spill would have been contained by now.
  • I thought it might recover some of it’s losses for that day the next day or so.
  • I didn’t realize how bad the oil spill was.

My gut instinct was to sell as soon as I heard.  They say that the oil leak may take up to 3 months to control.  Three months!!!  That’s a very long time.

Why was I in BP initially?

It had an 9% dividend when I initially got in!!!  It was a great oil dividend play (athough I only had a very small position).  It would be a great oil stock dividend play today if it wasn’t for that oil spill.

I’ve read online that people  like me are overreacting, but even if I am, the stock will still drop.

I feel bad for the New Orleans Shrimpers down there!  I don’t think there is going to be an easy answer!

Readers:  Sometimes, does seem that a dark cloud follow you in your investments like they do with me?

-MR

Update (05/05/2010) I jumped back in read it here!

Is the Stock Market A Fool’s Game For Us Small Investors?

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Today I’m going to blog about the stock market and if it’s a rigged game because it often seems that way!

What’s a small (WallStreet calls us “Retail”) investor to do?

Perhaps, we should sock away our money under our proverbial mattress at home? Maybe…, but not me. After all, when you store money in your house, it loses value to inflation. It’s kind of like a glass of water sitting in the middle of your house… eventually, the water will evaporate, leaving just worthless residue in your glass…

So are we the little investors at a disadvantage? Yes and No.

The “Yes, we are playing a fool’s game” argument:

  • The institutional investors (mutual funds, hedge funds), have trained professionals that basically invest all day long!
  • They can control the momentum of a stock, with their buy orders alone.
  • They have access to the target company CEO and other executives to check how the company is performing.
  • They have the education and skills to play derivatives so they can hedge their losses
  • Most small investors, only play the “buy and hold” game.  So we are mostly a one-trick pony.  Surprisingly, that is a good thing actually…

The “No, we have an advantage” argument:

  • We can capitalize on the institutional investor’s momentum, so we can skim off some of the price appreciation that the institutional investors create.
  • We don’t have to worry about the numbers and competing against other institutional investors, especially quarterly performance numbers.
  • We can take positions in smaller companies that are too small for the institutional to gobble up.
  • We are fortunate enough to be able to examine the financial statements of all publicly traded companies.
  • Expensive Transaction fees are no longer the concern they use to be.
  • The internet provided financial information quickly, vs the past.

I do know if decent stocks are purchased and if they are left to grow (basically ignored), they can appreciate having high levels.  This happened to me as a kid growing up.

I guess it all depends on what you are comfortable with.  I will say that today, I see the downturn in the market a buying opportunity, especially in the non-financial sector (why are these segments down today anyway, mostly because of fear.  I follow Warren Buffett’s advice ).

If you don’t have time to invest, then consider mutual funds or ETFs.

Readers, what is your opinion on the matter?  Do you think the stock market (or any financial market for that matter), is rigged against small investors?

-MR

Asset Class Diversification For The Middle Class

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Yesterday, I blogged about my high net worth friend that has over 5 million in assets in my post Ways To Invest Money Once You Have Over 1 Million in Financial Assets.

After reading a comment left by another blogger, I now realize that my friend already has a decent amount of asset class diversification.

The following list contains the ways that he is already diversified:

  • Real estate (mostly business related and a vacation rental property)
  • U.S. Treasuries Bonds.
  • Local Municipality Bonds
  • Solidly rated Company Bonds
  • Investments in other small businesses.
  • Mutual Funds and ETFs (Exchange Traded Funds)
  • Cash and Money Market funds
  • Gold and other precious metals
  • Preferred Stocks (or preferred ETFs or mutual funds)
  • safe Dividend Yielding Stocks
  • Moderate risk, but high growth individual stocks
  • Financial preservation, I would guess he has life insurance for his wife and kids?

how can we lower our investment risk with some of the asset class diversification like HNW (High Net Worth) Individuals have, as a middle class member?

  • Real Estate:  We can invest in REIT stocks or ETFs. I don’t think we truly get the full leverage that we would need to become rich, but at least we would have that diversification via the Real Estate route.
  • U.S. Treasuries:  He buys the $10,000 issues because of the higher yield rates, maybe we should buy one of these, or buy $1,000 issues for a lower yield rate?
  • Local Municipality Bonds:  My HNW friend buys these too for the tax benefits.  I don’t think they would benefit me much at this point in time.
  • Solidly rated Company Bonds:  He does this, but so can we. I plan on using the age based approach to determine my amount of bond ownership
  • Small Businesses:  His small businesses are large to me, but from a U.S. perspective they are small. I’d recommend starting with a lost cost business like selling on Amazon or Ebay, or blogging (I haven’t made much money with blogging, so amazon or facebook marketplace might give you more bang for your buck quickly).  After playing with the small stuff for a few years, jump into something that you have a true passion about.
  • Mutual Fund & ETFs:  Most of my HNW friend’s money is in mutual fund and ETFs (and so is mine).  This is a good way to go especially with index funds…  Today it makes more sense to go with an ETFs instead of mutual fund!  Usually, ETFs have much lower expense ratios too… or at least the ones I own do…
  • Individual Stocks:  My HNW friend has me beat here.  He buys for the long term, and not the high risk, high growth stocks that I buy.  He has outperformed me in this area!  Surprisingly, he has just a hand full of these stocks. (he’s owned stocks like soft drink and entertainment stocks).
  • Preferred Stock or ETFs:  I’m just starting to dabble in this, but mostly you buy for the yield so in many ways it’s properties are somewhere between common stock and bonds.

In past articles, I mentioned the Age-Based allocation method for bond and stock ownership, and just in case you aren’t familiar with this approach, there it is:

  • SOP: Stock Ownership percentage (of your investment portfolio) =   120   –   (your current age)
  • BOP: Bond Ownership Percentage (of your investment portfolio)  = 100 – (Stock Ownership Percentage number)

So if you are 25 years old, your SOP would be 95% and your BOP would be 5%  Since my friend doesn’t need as much risk in his portfolio, he has a high BOP number than most that are his age. Those of us in the middle class though, we need that growth…

Most of us will never own a small business, and many will not own real estate other than our primary home.  But, like my HNW friend, perhaps we should…

Good luck!

-Don