Pump & Dump

September 30th, 2010 by Potato

I looked at BP through the disaster in the gulf, and figured that they would not go bankrupt, and that it would look interesting to me at about $30. It crashed through that, bottoming out near $27, then started moving back up as news that the siphoning/recovery was at least partially working, and that the relief well was progressing well. One expert said that the team drilling the relief well had a 100% success rate (40 for 40). That lead me to buy in at $30.20 on the way back up.

I figured that the stock was cheap, overly beaten up on fears of just how high the costs for the cleanup could climb.

Now that the well is finally capped, and we can be sure that we’re not facing an Ixtoc-like scenario where oil gushes for months on end, the stock has recovered significantly, and I’m looking to sell.

BP is a remarkably profitable oil major, and many of the fines, settlements, and court awards won’t have to be paid for years and years. It’s possibly still cheap next to its peers. However, I don’t like BP as a long-term hold. Their safety record is horrendous, which may have played a role in the spill in the first place. They just sold off a lot of assets, and I doubt that they got terribly great value from the sales, given their negotiating position. I’ve made my money on the short-term inefficiency that was there due to fear, and now I’m out.

Hopefully, this crisis will serve to change the corporate culture at BP, and this may indeed be a good point to get in for the longer term as they come to put safety first… plus, if and when the dividend is restored, it will likely be an attractive yield. But for me, I’m taking my money and running.

To gloat a bit, I made 35% on the stock move itself, less 1% for commissions, 5% for the forex fee both ways (damn you Waterhouse, and your terrible USD exchange rates!!), and 2% for the move up in the Canadian dollar over the last few months, for a net gain of 27%.

As an aside, I called about buying another US security today and washing the trade. TD said they don’t do that for non-registered accounts since they have USD accounts as an option, so I’ve added one of those to my account, which should help a bit with exchange fees.

4 Responses to “Pump & Dump”

  1. Ben Says:

    Congrats man, that’s a good score! I’d love to be able to make my living that way!

  2. Potato Says:

    I’m a long way off from making my living that way (both in being consistently that good/lucky, and in having enough capital for that kind of return to mean something).

  3. Canadian Capitalist Says:

    Thanks for the mention. I’m curious why you got dinged both ways on the exchange rate. I thought that whenever you open an investment account, the big bank brokerages automatically open a USD account for you.

    Also, if you are converting significant chunks of CAD into USD consider buying RIM or POT on the TSX and selling it in the US. I’ve done this a couple of times and it saves a bundle on the conversions.


  4. Potato Says:

    That’s the last time I’ll get dinged both ways. My account dates from the Canada Trust days, so I didn’t have a USD segment to the account. That’s set up now so I’ll only pay currency exchange fees when I move money between the accounts (or do Norbert’s gambit there).

    Newer accounts should automatically have the USD account as you say.