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The last fortnight has seen a BP continue the attempt to prevent oil pouring into the sea after their Deepwater Horizon oil rig exploded on 20th April. Since the rig exploded and subsequently sank, an estimated 5,000 barrels of oil have been finding their way into the seas of the Gulf of Mexico every single day.

The oil is now drifting towards the US coast and threatens not only wildlife but also thousands of peoples’ livelihoods dependent on fishing and tourism.

BP’s latest move, the ‘top kill’ operation, saw them attempt to plug the spill by pumping 30,000 barrels of mud into the well over a period of three days. The operation failed as oil continued to leak into the Gulf of Mexico, forcing BP to start the process of digging a relief well and pumping concrete into the well shaft. Although this is likely to stop the leak, it will take around 8 weeks to complete, meaning the workers will be out there well into the areas’ hurricane season.

So as you would imagine, BP’s market value has taken a monumental pounding; dropping 36% since the disaster in April. This translates to a hefty £45bn drop for the petrol giant, and BP’s share price now sits at just 417p per share.

Things got even worse for the company this week as US authorities announced they are launching a criminal investigation into the disaster, adding even more pressure on the company and making life more difficult for Tony Hayward (BP’s Chief Executive).

So is there any sense in investing with BP? Some experts believe that actually, the answer may be yes. Several analysts are suggesting that BP’s stock should now be a ‘buy’, thinking that the stock has dropped so low it may be worth a punt as they attempt to move forward from the disaster.

So let’s have a look at the pros and cons of buying BP.

Firstly, BP is a major supplier to the US Military; not that this will get them off any hooks, but it certainly will carry weight in America and should provide some leverage when it comes to keeping the company out of trouble with the US government. A lot of people are speculating that given BP’s past form, they might start to get banned from US government contracts – this might be more believable if the US wasn’t currently engaged in a major international war. I can’t see BP receiving a ban like this, which should help them achieve their annual dividend target.

BP’s dividend is another major point, accounting for a massive £1 in every £6 in FTSE 100 dividends paid; making it integral to the health of Britain’s pension fund. Tony Hayward has assured investors (and will do again this week) that the BP annual dividend won’t be cut.

Having said that, the cost of the disaster for BP may well rise considerably and it’s been suggested that their statistics released since the disaster are vastly under-estimated. For example, BP suggested that the cleanup cost had reached £930 million, but this doesn’t include claims from fisherman and tourism industries affected by the oil spill.

BP’s insurance costs could also be another prohibitively expensive cost in the aftermath of the catastrophe. Insurers will be well aware of the potential risks of getting themselves involved with BP, and premium costs will reflect this (if they manage to find substantial cover at all).

On the one hand, I genuinely can’t see BP losing their major US contracts, nor can I see their dividend being substantially cut, which should result in their share price beginning to climb again within a few months.

At the same time, confidence in BP is at an all time low and there’s no guarantee that the petroleum giant will come out of this with their Chief Executive or their dividend intact.

I would suggest that their will be a relief rally and that the stock will eventually climb again, but I’d only really advise sticking the BP stock if you’re already a shareholder. For those wanting to get in to the oil market I’d recommend Chevron, a major US oil stock. Chevron have around a 4% prospective yield and practically no debt to the company, making them a far safer option than the troubled BP; and should BP get a band from US contract, the share price for Chevron will rise considerably.

This is a guest post by John, John is a financial advisor working with a UK based company specialising in share dealing, spread betting and forex trading. He’s a keen blogger and contributes regularly to the financial blogosphere.

photo: (NOAA via uscgd8)

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Some of you may remember my first foray into investing. It was an half thought out idea that was, in hindsight, quite stupid. As a result of that I have been working towards a more sane and economical approach to getting some non-retirement funds invested into the markets. I am by no means a day trader or speculator. I just don’t have the knowledge or expertise to start throwing wads of cash at individual companies. So my main goal was to find a company with some decent No Transaction Fee (NTF) mutual funds. Enter Scottrade.

About the Company

Since 1996 Scottrade has been offering online trading to its customers. With over 350 branch offices they are both an online and person kind of shop. As a discount brokerage with a focus for online investing they offer an easy to use online trading platforms for idiots like me. In addition to the simple platform they offer ScottradeElite for true active traders. I am no active trader so their simple interface is all I use. They also offer a mobile site, not to mention that they have local branch offices.

Why I Chose Them

I had initially decided to open an account with Sharebuilder because they had a good automatic investment “plan” that would automagically pull money from your checking account and invest it in your stock/fund of choice. The problem with that was every time I invested my $100 they were going to charge me $4. It was brought to my attention that No Load/No Transaction Fee fund may be the better option for investing minimal amounts of cash. Looking into it I found some decent funds on Sharebuilder but they all required at least $1,000 initial investment. Scottrade on the other hand only required $500 to open an account and their minimum initial investment for a NTF fund was $250. Obviously it works better for me and my piddly amount of cash to go with Scottrade.

Account Process

Opening an account with Scottrade was relatively painless. In fact it was a lot like opening an account an online bank. They ask you the basic kind of questions you would expect to see with your bank and then presto you have an account opened up. One thing was a little bit different was that you do have to pick a local branch who will then send you out some information as well as a request to send in a signature card. Unlike most online bank accounts you actually will have to send something back to them to get full access to your account, I can’t remember what you couldn’t do without one but it didn’t affect me directly.

Using the Account

Using the account was not quite as intuitive as I thought it could be. I had a little bit of a problem trying to find exactly what I was looking for. I wanted to find no load/no transaction fee mutual funds. I went to research and mutual funds but all it let me do was search by symbol. It took me a while to find the mutual fund screener which allowed me to locate no load NTF funds for sale at Scottrade, there were 2915. 2915 was a daunting thing to have to look at so luckily I knew approximately what the symbol was I wanted and zeroed in on my choice. Once I found the fund I wanted buying is was easy as pie. The only thing that I miss about Sharebuilder was the ability to automatically do the investing. I have to remember to go in and buy into the fund when my transfer hits.

So far I haven’t found anything that would make me want to jump ship. Their user interface isn’t the flashiest thing on earth, in fact it is pretty bland but it gets the job done. I have enjoyed it and they make the transfer of funds from bank to brokerage super easy, which is refreshingly nice.

Who do you use for your online brokerage needs?

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PBS is poised to run a NOVA special tonight at 8PM ET/PT titled Mind Over Money. The show seeks to explore the differences between conventional economics and behavioral economics. They try to understand how emotions play a role in economics and show various experiments that were conducted to “prove” emotions influence your decisions. This emotional influence contrasts to conventional economics which says that people will always perform rationally when dealing with money. The theory is that you will work out exactly what something is worth to you and don’t allow your emotions to influence your decision.

Now I am not an actual economist so I can’t refute any of these theories on economics, it makes sense to me though that people will be influenced by their emotions. The show uses bubbles as an example of people acting irrationally. We convince ourselves that the value of something is considerably higher than it really is and start jumping on the bandwagon, right up until it pops like an overinflated balloon.

One of the “experiments” they used as an example of people acting irrationally was the auctioning of a $20 bill to a group of students. One student ended up paying$28 for a $20 bill. This is supposedly an irrational measure. What they don’t explain well enough is that the second place bidder also has to pay their bid and gets nothing. The bidding goes up above $20 in an effort to win and cut your losses, the person who lost the bidding war still had to pay $27 while the winner was only out $8. Of course had they stopped at the $20 mark the second place bidder would have been out $19 which is more than the $8 extra he paid for the $20. They artificially forced the price above $20 by instituting a penalty for the second place bidder. To me it would have been rational to continue to bid if I was sitting in second place.

Experiments aside I think you would be hard pressed to say people are always going to act rationally when it comes to money. The rational method of reducing debt would be to pay off your highest interest debt first to cut down the amount of money your debt is costing you. Dave Ramsey has made his career by encouraging you to act emotionally not rationally when it comes to debt reduction. This process makes sense and it works. You get the little wins up front which encourage you to continue to reduce debt by building on your snowball. This isn’t rational but it makes sense. Looking back at the housing boom can we think that the epic rise in house prices was the result of rational thinking or irrational actions.

NOVA quotes Robert Schiller, author of Irrational Exuberance as an example of someone who believed the markets were overvalued and didn’t support the prices being seen at the time. Other economists were shown discounting his claims. Shiller’s theory was that while the booming markets were initially based on solid reasoning it converted to emotional excitement and envy which further fed the building bubble until it burst. Emotions are a big part of how we handle money, whether or not that proves conventional economics is wrong is up to you.

If you are interested in learning more check out the NOVA special tonight on PBS at 8pm ET/PT and/or visit their site at http://www.pbs.org/nova/money for more information.

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When, If Ever, Should You Buy Gold?

February 17, 2010
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This article is a guest post by Shaun Connell. One of the things that can consistently make investing a difficult practice is timing. If it was easy to time everything perfectly, then everyone would be doing it and we would all be rich. Unfortunately, there are no exact answers on when you should invest in […]

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OptionsHouse Extends Their 100 Free Trade Offer

February 11, 2010

Online brokerage firm OptionsHouse.com has extended their offer of 100 free trades through April 30, 2010. OptionsHouse offers $2.95 flat-rate stock trades and $9.95 flat-rate options trades. When you sign up from now until April 30, 2010 you will get 100 free trades by using the promotional code FREE100. Options house was voted #1 in […]

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