Wednesday, June 9, 2010

Betting Does Not Equal Investing

According to Dilbert creator Scott Adams (via an interesting WSJ piece 'Betting on the Bad Guys'):

When I heard that BP was destroying a big portion of Earth, with no serious discussion of cutting their dividend, I had two thoughts: 1) I hate them, and 2) This would be an excellent time to buy their stock. And so I did. Although I should have waited a week.

People ask me how it feels to take the side of moral bankruptcy. Answer: Pretty good! Thanks for asking. How's it feel to be a disgruntled victim?
But the danger of buying out of hatred can be seen with how long people have already "hated" BP (details of the hatred launch date):
On April 20, 2010, a semi-submersible exploratory offshore drilling rig in the Gulf of Mexico exploded after a blowout and sank two days later, killing eleven people and causing a massive oil spill threatening the coast of Louisiana, Mississippi, Alabama, Texas, and Florida.
At the point of the initial explosion, the stock hung in there. Once details of the spill became known... down ~15%. Once details of the spill became even more known... down ~20%. Once details became even more known... ~30%, then ~40%, then ~50%.


This of course is due to the complete lack of transparency. While I know for sure that I truly hate BP, does that mean BP is now (at a 50% discount) a good buy? No clue.

It is very possible they are, but I can also see a situation where things get much worse in the gulf and for BP, which brings me to my next point. Buying purely out of hatred is 100% not an investment decision, but rather (as the title of his article says) betting. I personally love betting, but I keep that to non-investment related matters (anyone think the Celtics are winning the series?).

But don't say Scott didn't warn you:
This would be a good time to remind you not to make investment decisions based on the wisdom of cartoonists.
And this:
Again, I remind you to ignore me.
Source: Yahoo