Methodology vs Outcome: BP Trade, One Year Later

Last June, as BP was plummeting towards $27-30 level, we gave some advice to traders who were trying to figure out how to play this. We also had a debate on buying in at these levels on Fast Money  (Video is here, starting at the 4:30 mark).

For those of you who followed the advice — Congratulations! BP’s stock ran from sub $27-30 range to $49.25. It recently broke its uptrend, and with a year of cap gains (taxed at a mere 15%), you may want to think about taking some of those profits off the table (you can thank me here).

But more than the specific stock high lows of the trade, I want you to look at the process, not the outcome. The suggestions of scaling in over time, looking at the 40% below enterprise value price, waiting until an upside break over the 20 day moving average (for a freefalling stock) — these are all general methods that can be as applied to any name, not just BP.

Any stock can be a winner on a purely random basis; what matters more than any single successful outcome is a repeatable methodology.

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10 Thoughts for Those Buying (or Selling) BP… (June 10, 2010)

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