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Avoiding The Next BP

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July 31, 2010 – Comments (1) | RELATED TICKERS: PFE , BP , MON

In this blog by TMFDanDzombak he asks the question: BP (NYSE: BP) had always been thought of as a blue chip, a stock you can invest in and not worry. But then the Deepwater Horizon disaster happened, lopping off nearly 40% of the company's value. In dollar terms, that's more than $60 billion of company value, gone in less than three months. Many investors are furious and are wondering if this was foreseeable. So how can you avoid the next BP?

He then talks about the Project for Government Oversight, "POGO" which is an excellent source of information about misbehaving companys.

POGO maintains the Federal Contractor Misconduct Database, detailing instances of misconduct from 1995 to the present. Over 15 years, you would expect there to be some instances of misconduct; people are human, after all. What's interesting is to look at the companies with the most instances of misconduct.

He then finishes with the following suggestions and question:

Lesson to be learned
So what can we learn from this?

1. Beware companies that have serious records of mistreating the public trust. This flouting of ethical conventions suggests that such companies will ultimately treat shareholders poorly, too.

2. Diversify. Don't let a BP-like event wreak havoc on your portfolio. It's terrible when you hear stories of people being invested in only one or two stocks and losing all their retirement savings. Don't let this happen to you.

3. Do your homework: BP's atrocious record was available to the public.

What do you think? Is this a real way to avoid the next BP, or just a case of hindsight being 20-20? Let us know in the comments box below.

I suggested the "left" wing rags and blogs are the source he was looking for.

The POGO database is a good place to start. The incompetence of corporate America is best described by the "left" in places such as "Mother Jones", Common Dreams"  "Truthdig.com" websites regularly denounced as "liberal" "left" or "anti business" where  the ideals of Libertarian thinking come closest to fruition as private citizens pay through voluntary contributions for the truth that neither corporate America nor their libertarian lapdogs would have you know. 

In the case of BP there has been a decade of atrticles about their abuses in Nigeria and South America and problems in Alaska and Canada.

But this is about the "next" BP, not the last one.

The "Next" BP:

I came across this from a link in a story on the common dreams website:

http://www.bnet.com/blog/drug-business/10-amazing-facts-about-pfizer-8217s-23b-bextra-settlement/2762 

Please note the tenth "amazing fact" in the link. There is not one single mention of the 2.3 billion dollar fine in the TMF pitches for Pfizer.

Does this mean you should short PFE? No. It took ten years before BP's problems turned into a gusher. It does mean that PFE does not get my hard earned cash. There are other fish in the sea.

Due diligence.

1 Comments – Post Your Own

#1) On August 01, 2010 at 12:51 PM, tomlongrpv (71.37) wrote:

Of course those of us buying BP now are not buying it as a blue chip.  We are buying it (for a small part of my portfolio) as a risky speculative investment in the hope BP will turn itself around and fundamentally change.  (Certainly it is going to be provided motivation to do so).  I think your comment about PFE is appropriate and that these kinds of companies should not be purchased when their prices relect that the market thinks of them as "blue chips."  But when the market overreacts in the other direction, these companies may provide unique opportunities.

 Anyway--well said.

 

 

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