Portfolio +3.3% YTD


  • Enlightened-American Portfolio: +3.3% through Apr, 2010 (my actual IRR, including cash balance)
  • DJIA: +5.6%
  • Nasdaq: +8.5%
  • S&P 500: +6.4%
  • DJ Wilshire 5000: +7.9%
  • Russell 2000 (smallcap): +13.0%

While BP is a relatively small position in the Enlightened American portfolio, I was somewhat alarmed by the 8% drop early Monday morning. After spending the morning researching BP news and the latest events surrounding last week’s Gulf oil spill, I was relatively confident the market was overreacting. Admittedly, there are high levels of uncertainty and lack of clarity regarding BP’s liability in this situation — what responsibility will Transocean (RIG) bear as operator of the rig or Halliburton (HAL) as the servicer who cemented the well? Estimates of possible costs have ranged up to $7B, no doubt a hefty sum but roughly equivalent to last year’s free cash flow and less than one year’s dividend payments.

While not perfect, BP management’s crisis response has been adequate thus far. While some commentaries warn of a “PR disaster” for the company, this concern is somewhat redundant for an oil company — Big Oil will never be public darlings due to the inherent nature of the industry. Just weather the crisis now and the public will move onto some other distraction in time.

As for legal liability, I am sure there will be headline-grabbing lawsuit numbers in the future but investors should use the Exxon Mobil (XOM) Valdez settlement as a guide. The system being what it is, I fully expect BP to use their corporate coffers to delay and dilute the day of legal reckoning for years, perhaps decades, to come.

As for my market outlook, after more than a year of relentless rallying, it is difficult to anticipate an extended market drop due to the Greek/EU fiscal crisis. Investors seem stuck in a buy-the-dip mentality and this mindset may remain until the Fed’s liquidity spout dries up, which isn’t in the foreseeable future. As always, we remain vigilant for good-to-great opportunities and are willing to be patient.

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