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Diary of a Dumb Investor: get ready for love, Bob Dudley

Owning BP (BP.L) should offer me a little protection if oil prices continue to rise, and I could also get some Gulf of Mexico-inspired upside. 

 
Diary of a Dumb Investor: get ready for love, Bob Dudley

I’ve chosen to embark on a radically different strategy to hedge against future falls in stock markets: instead of trying to ‘short’ the FTSE 100, I have bought shares in accident-prone oil company BP (BP.L).

Read Dumb Investor: the story so far

There is some logic to the move, seriously. A reader, dpeddlar, made me realise that while markets are probably going to nose-dive at some point soon, it will be very hard to predict exactly when – what with the world’s central banks still spraying cash at the global economy.

‘Don’t fight the Fed,’ the reader cautioned me, before going on to allay my concerns about the eurozone, saying: ‘Do you think if Greece defaults it will come as a surprise to anyone, even my dog is expecting that!’

I now believe that the current rally in markets may have a little longer to run. That is, unless oil prices spike and shatter the global recovery. Oil has ruptured all-time highs in both sterling and euros, so there’s a good chance that petrol prices will hamper consumer spending and factory output.

But owning an oil company should offer me a little protection, since at least it should do well even as the rest of the world suffers. Of course I used to own an oil company, Afren (AFRE.L), but I sold it at a loss of 42% on my original investment of £1,000... You can read here about that painful episode.

So how much did all this cost me this time round? On Monday morning I bought 199 BP shares, at 503.34p apiece. I spent £1,019 on the stock, plus another £5.01 on stamp duty to fatten George Osborne’s pocket, and another £12.95 in commission to Hargreaves Lansdown, my online broker.

Where I stood on Monday: Click to enlarge

Yes, there are a horde of law suits bearing down on the company, threatening to extract billions of dollars of compensation for the 2010 oil spill in the Gulf of Mexico. Yet there’s also a chance that BP will manage to settle a good number of the cases, removing some of the uncertainty hovering around its shares.

I’ll be honest: I am a betting man – if a somewhat jittery one – and all these absolute return-esque, global strategic, total return yada yada funds I own are frankly a little dull. So with my BP play, I will enjoy further rises in oil prices – let’s not forget that the company made $23.9 billion in profit last year, and its stock has a dividend yield of over 4% – as well as the chance to gain any upside from a decent legal outcome.

It’s time for Bob Dudley, BP’s mild mannered and clean-cut American chief executive, who was chased out of Russia in 2008, to welcome me to the shareholder fold. I will never chase him anywhere, I promise. And after my Afren debacle, I’m in for a bit of ‘buy and hold’ action on this one.

And now, when I smart at the petrol pump, I can at least take some comfort in the fact that I’m enriching myself as well as the world’s petro-dictators.

18 comments so far. Why not have your say?

Dennis .

Feb 27, 2012 at 14:35

I totally agree and have spent £6K over the past 18 months buying BP at less than 400p. Current target is Tesco, it's a sort of DIY recovery fund approach.

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Ubiqueloco

Feb 27, 2012 at 15:24

And there I was thinking from your last article that you had finally started to learn something! I guess not! BP is currently showing up 1.17% on the day at 502! So much baggage with BP when there are so many other opportunities out there in Oil and Minerals, if you don't like the risk buy Junior Oils Trust through H&L!

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alan thorburn

Feb 27, 2012 at 17:22

For "Dumb Investor" read IDIOT !

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John Bowers

Feb 27, 2012 at 17:43

I agree with the above comment re Junior Oils. I bought some one month ago and it is already up 10%.

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Jayzee Cole

Feb 27, 2012 at 17:54

I get a sinking feeling when you buy shares i hold.

Please sell BP.

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B Coulson

Feb 27, 2012 at 18:09

You're overtrading. Calculate the annual cost of all the broker charges, dealing costs, stamp duty and spreads you've incurred as a percentage of the total fund value. If the percentage costs is higher than about 1%, which is a reasonable annual fund management charge, then you're overtrading. The point of investing is to allow the dividend returns and capital gains to compound over a long period of time. By overtrading you're effectively giving your money away to the broker, market makers and other investors.

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snoekie

Feb 27, 2012 at 18:28

I commend your choice, albeit done somewhat late in the day. I bought in @4.25. although I should have done it much earlier, and more to the point, I hesitated too long 6 weeks ago when they were below £3.90.

My view is that there will be some volatility in this stock in the months ahead. Do sit tight when this happens.

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John Osborne

Feb 27, 2012 at 18:41

Who knows what will happen to BP shareprice, but shame you did not buy it when at 400p..

At least now you are exposed to a good sector, if the oil price rockets and there are no more real nasties.

Then may turn out well as undervalued slightly on p/e etc..

I prefer (and hold) BG Tullow and New City Energy IT.

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David J Robertson

Feb 27, 2012 at 19:19

Like many people I have been buying BP, firstly at 439p, then again at 450p and finally at 45op (I 'dallied' too long before my first purchase).

however as 'Dumb investor' has purchased - the queston is should I sell ?

Answer - Not yet I have an exit price of 540 and still no reason to believe BP will not reach 540 so I will continue to hold.

Dumbo might be right - law of averages etc

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Anonymous 1 needed this 'off the record'

Feb 27, 2012 at 19:33

Strange, you decide to invest in a Company that is in heavy litigation and in an oil company when Brent is at 12 month plus high, I hope whoever gave you this capital is not turning in their grave..... is their a problem with Vodafone, Tesco, Centrica etc.....

As they say 'a fool and his money is easily parted'

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Tortoise1000

Feb 27, 2012 at 19:50

I dont understand what your overall strategy is. Have you written it down

somewhere?

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red_dragon

Feb 27, 2012 at 22:33

Di's strategy:

1) only invest when the market is high

2) sell when shares are down 40%

3) panic when not making money

4) listen to every piece of market noise to help mistime any investment

5) ignore common sense

6) realise that investing is not for every one and take money out of market and spend on nice holiday.

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elizabeth wildgoose

Feb 27, 2012 at 23:58

... surely it can't just be me, BUT, hasn't the penny dropped out there in 'cashland' that whoever is writing this - eponymous (clue in the title) DI stuff had a crystal clear remit - from minute one - to live up to the 'Dumb' title ?

It's just entertainment ! Buying sensible stocks and keeping them for '... quite a while actually', , obeying the basic sharebuying rules that even my cat understands... ? .. where's the tabloid-esq fun in that ? Might as well read the FT.

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john_r

Feb 28, 2012 at 11:35

Only 2% down - thats actually quite impressive considering the dog of a year just gone - or does your little chart not tell the whole picture. Perhaps you don't need my tip after all but I'll give it anyway since you did mention you are a gambling man. My suggestion is New City Energy Subscription shares(NCES). These shares are geared to the main New City Energy IT share price (NCE).

Each subscription share can be converted to the main share for 70p prior to Sep 2013. The main share is currently around 60p and rising. The subscription shares are currently 8.3p (ie at a premium) and starting to rise faster. So lets say the energy shares get back to 84p which is where they were last February then the subscription shares are equally likely to get back to 22p.

Excluding trading that's around 165% rise for a 40% rise in the main share.

So this 4:1 gearing maybe just what a gambling man needs to put some spice into his portfolio. A word of warning the gearing works just the same on the downside so a modest stake say £600-£700 is perhaps appropriate to limit any downside. And also that premium on the subsc shares could dissappear as you get close to the final conversion day in 2013

I'm not sure if you have any cash left but selling Lloyds (now that is a risky share to hold) would allow you to move from one gamble to another but one with better upside in my opinion. Of course do your own research first - good luck. Read the NCE last annual report here: http://hugin.info/140891/R/1573080/489578.pdf

PS I have no connection to New City other than being a private investor in some of their Investment trusts ( and I topped up recently on NCES).

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Frank Watson

Mar 04, 2012 at 09:44

I have bought them all the way up since the blowout, but I am contrary and not averse to risk!

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Suze Jamieson

Mar 04, 2012 at 10:59

@red_dragon

plus...

7) ignore the fact that the only investments that are holding his head above water are the 'boring' ones he hasn't messed with - OMAM, Scottish Oriental and Aberdeen EM.

john_r

What do you mean 'only 2% down'?! I started at the same time as Dumbo and I'm 14% up - by not churning like at madman and recognising a bad investment when I saw one!

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Chris G

Mar 04, 2012 at 23:56

'only 2% down'? Er, no! Actually almost 20% of the original £10,000 has now been lost. The chart of performance should be made to show the true overall outcome.

DI, if you are as much of a novice as you appear to be, maybe you should have done what all new investors ought to do, and that is to run a dummy (or pretend) portfolio first, so you can learn from your mistakes before committing real money.

But I agree with others in that you are over-trading like crazy. You don't give your investments a chance. Barclays was a prime example. Don't forget that investments really can go up as well as down, if only you'd hold them long enough . . . . You'll never get in at the lowest they'll ever be going forward. But if you do proper research, you'll come up trumps at least most of the time, over a period, if only you'd hold onto them. Actually, although I say you'll never get in at the absolute bottom going forward, that may not necessarily be true. I've been investing since 1968, and I remember well buying shares in Christian Salvesen plc, many years ago now, and selling out at a 60% profit without ever having shown a loss at any time on them. But that was once in 43+ years of investing! But I now have a portfolio of 30 holdings (some quite chunky) and only 5 are in loss, of which only one is substantial (yes, I'll admit it) and one is a small, illiquid holding bought last week which hasn't yet covered its buying costs.

DI, do detailed, in depth, research on your prospective investments, and have the confidence in what you learn from that research to hold onto your shares to give them the chance to provide the returns you expect following that research. The market can often value things wrongly, and might continue to do so for a quite a while, but ultimately, if your research was right, you'll get your reward. Just be patient!!

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LooLoo

Mar 07, 2012 at 08:42

I just wonder why you use Hargreaves at £12.95, when you could use X-O at £5.95.

I bought BP a year ago at £4.90 and watched it sink and sink, but now it is back roughly at what I paid, but I have enjoyed 4 divis and now that has been increased.

Buy, hold and don't panic; however as a previous comment rightly says, that wouldn't be such an amusing column.

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