bp oil spill shares

BP says it will not issue new shares to cover the costs of the spill

LONDON - BP said Tuesday it has no plans to issue new shares to help pay for the Gulf of Mexico oil spill, which gives a new step up its efforts amid talk of interest funds sovereigns.

BP's Stock Market Price, and lessons

On 20 April 2010 explosion of the Deepwater Horizon oil rig in the Gulf of Mexico. At the same time began, the price of BP shares to implode. On 20 April closed, BP's share price at $ 60.48. From 10 May it had fallen $ 48.75. During this time, the company calculates a market capitalization ( by multiplying the stock price by the number of outstanding shares trading) fell by more than $ 36,000,000,000th

At this point, many financial advisers recommend began investors buy BP stock. They believed that the amount of money that it would take to clean up the oil spill in the vicinity of the $ 36000000000, aggregated that BP Market share had lost value. Even Jim Cramer, CNBC's high-profile stock market guru and host of the show Mad Money, said that the stock was a buy for that reason. But about a month and a half later, BP's shares now sits at about $ 29 per share, representing a market capitalization loss of almost 100 billion U.S. dollars. The initial investment advice seemed reasonable, so what went wrong?

The first thing to note is that the stock market does not always behave rationally. As John Maynard Keynes pointed out, markets can remain irrational longer than you can stay solvent. This is especially true when a company constantly receives negative attention , the media, such as BP. Investors have become nervous and often their shares in a company that consistently sell in a negative spotlight.

As well, the Market generally dislikes uncertainty. If market analysts recommend investing in BP in early May, assuming that they would be the flow of oil into the Gulf of Mexico soon stop. Many pointed to, such as Exxon's shares made after the Valdez disaster and said that BP would uncategorically situation is not worse than this. However, there was no basis for this false assumption. The BP disaster was worse and it is still uncertain when the oil flows more abundantly will cease. In addition, no one knows for certain what BP's total cost in dealing with the consequences of this disaster. Many news agencies have reported that BP clean up costs over $ 100,000,000 per day and that the total cost now have $ 3000000000 surpassed. But to stop the oil flow and the damage is measured, it will be difficult to know how much money BP is due . Lose

Does this mean that investing in BP shares is a bad decision? Not necessarily. Under the assumption that the stock was fairly priced, the Disaster, it seems very unlikely that the cost of BP is about to suffer loss of 100 billion U.S. dollars market cap. As well, BP generates about $ im 30000000000 operating cash flow per year, which should allow him to clean cover the running costs and make it easier for the company with additional resources they need increase in loans or equity sales. A disadvantage is that BP could be forced to cut its dividend to cover cleanup costs. Perhaps this is already in the share price, but it is likely that the stock price will fall if and when a dividend cut is announced.

A lessons learned from the BP shares Slide is the importance of diversity portfolio. Even financially strong companies like BP are subject to what is known as event risk. If BP stock represented a small percentage of the total Investment, they should not have a significant impact on your overall return. Research suggests that for the majority of profits that you made to diversify are provided from investing activities in over 30 different effects that you maintain the same relative positions in each. This diversification protects you from almost all Company specific risk. A diversified investors should not be without significant losses from BP misery.

BP Oil Spill Commercial: Pelican Scrubbing!