Ten Mistakes by BP a Trader Should Never Make

May 30th, 2010 | By | Category: General Comments, Mike Bellafiore's (Bella's) Blogs
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1. No Exit Plan.  There was no exit plan for if the rig (RIG?) exploded.  Before every trade we must decide where and how we will exit BEFORE entering the trade.

2. Live to Play Another Day.  It is not definitive that BP is a viable company going forward even with 6.08 Billion in quarterly profits.  1) When will the spill stop? 2) They have a larger rig whose safety was questioned on 60 minutes. 3) What will be the economic penalties imposed on them by the surrounding states whose ecology and local economy they have ruined? Will they pay tens of billions in economic penalties under federal law?  The workers who lost their jobs?  The future illnesses they have created?  This is two decades of lawsuits ahead.  4) Why would anyone buy a BP product after the ruination they caused through their incompetence and greed?  Will we all really forget this spill?  I know I wake up with a touch more stress first wondering if BP has minimized the spill.  5) Will the spill find Florida?  A new round of political invective will hit if this occurs.

3. Attention to detail.  Now there are reports that 12,000 barrels a day are leaking from the blow out and not the 5,000 first reported.  Do you think a trader would be out of the money in a position and not know how many shares he needed to dump?

4. A lack of assistance from the oil community.  Why the (insert very angry expletive deletive here) (and repeat this very angry expletive deletive as many times as you wish while discussing BP, the oil industry as a whole and the spill) isn’t EVERY expert from EVERY oil company, EVERY useful piece of equipment to clean the spill down in the Gulf RIGHT NOW?

This is a national emergency.  This spill is a war on North America.  The spill is destroying our ecosystem.  Just today there is a new article with evidence from a local professor finding patches of oil beneath the surface yet to inflict harm but certain to with the next hurricane.  As traders we form alliances, mentor/mentee relationships, friendships with like-minded individuals, and partnerships so we are all stronger.  The oil community is just one big solo trader on an island with only one set of ideas.

5. Where is the hedging?  So the top kill didn’t work.  That was an all-in strategy.  Why aren’t there supertankers in the Gulf trying to suck out some of the oil right now as a hedge?

6. Transparency and Risk Control.  At your trading firm could you have hidden positions 10 times the risk known to your firm.  Today there are reports there is a second leak that is spewing 120,000 barrels a day into the Gulf.

7. Overanxious.  The drillers moved too quickly.  This created the spill.  As traders we wait for our set ups where our risk is one and reward is five.  We never enter a trader too early.

8. Lack of backtesting.  Drilling so deep underwater needed more backtesting. Back testing is required for all new trades.

9. Responsibility.  After you make a horrible trade you must accept responsibility.  When the hacks from RIG BP and HAL went before Congress they fell all over themselves placing blame on the other. President Obama scolded: “I have to say, though, I did not appreciate what I considered to be a ridiculous spectacle during the congressional hearings into this matter. You had executives of BP and Transocean and Halliburton falling over each other to point the finger of blame at somebody else.”

As traders we look in the mirror identify our mistakes, journal about them, discuss them with our peers, visualize a better approach, and improve.  Blaming the market makers, algos, trading platform, firm, the guy who sits next to you, does not make us better traders.  If we engage in this lowest common denominator behavior the market will eliminate us.

10. Purpose.  BP (and too many other companies) have decided like soulless, amoral, selfish, irresponsible, incompetent, small, insecure, greedy, unintelligent, visionless hacks that  their only purpose is to make money for their shareholders (corporate executives?).  Today I read this quote from an energy CEO: “What I worry about as an energy CEO is what effect this will have on energy policy,” he said, noting it may lead people to look more seriously at electric cars, or complicate plans to pump carbon underground. “This BP thing has tentacles.”


They still do not understand.  How about if an energy company’s purpose was to provide clean energy so as to preserve the planet entrusted to us, mainly through technological advancements driven by a revolutionary company, at a low cost improving the economic purchasing power of most citizens, and for the benefit of their shareholders.  Now that would be a company everyone would want to work for and would dominate the energy sector.

As traders our job is not to make money.  It is to become an elite performer, which then leads to profitable trades.  As traders we seek to maximize our moments as the best of ourselves improving the quality of our lives.  This is our purpose for trading.

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15 comments
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  1. Really an incredible write up! So true about taking responsibility for your actions as a trader. Seem’s like BP was so fixated on the reward($$$), and not on the potential risks. I don’t appreciate BP free rolling the american taxpayers!

  2. Really an incredible write up! So true about taking responsibility for your actions as a trader. Seem’s like BP was so fixated on the reward($$$), and not on the potential risks. I don’t appreciate BP free rolling the american taxpayers!

  3. Really an incredible write up! So true about taking responsibility for your actions as a trader. Seem’s like BP was so fixated on the reward($$$), and not on the potential risks. I don’t appreciate BP free rolling the american taxpayers!

  4. The difference between BP and us as traders is that for BP the game is rigged. Huge corporations pay off members of Congress with legal bribes called contributions, and have lobbyists write the laws that Congress signs. Any meaningful reform gets slashed in the end. Then they stack the govt with people from the industry to make sure no regulation and oversight occurs. The same thing is happening in the banking industry also.

    Just look at the Exxon Valdez case, where the Supreme Court, stacked with pro-corporate conservative judges, slashed Exxon’s liability from $5 billion to a paltry $500 million. Unless something dramatically changes with the way our govt functions then BP will continue to thrive.

    http://tinyurl.com/25m6h4x

    Michael

  5. The difference between BP and us as traders is that for BP the game is rigged. Huge corporations pay off members of Congress with legal bribes called contributions, and have lobbyists write the laws that Congress signs. Any meaningful reform gets slashed in the end. Then they stack the govt with people from the industry to make sure no regulation and oversight occurs. The same thing is happening in the banking industry also.

    Just look at the Exxon Valdez case, where the Supreme Court, stacked with pro-corporate conservative judges, slashed Exxon’s liability from $5 billion to a paltry $500 million. Unless something dramatically changes with the way our govt functions then BP will continue to thrive.

    http://tinyurl.com/25m6h4x

    Michael

  6. The difference between BP and us as traders is that for BP the game is rigged. Huge corporations pay off members of Congress with legal bribes called contributions, and have lobbyists write the laws that Congress signs. Any meaningful reform gets slashed in the end. Then they stack the govt with people from the industry to make sure no regulation and oversight occurs. The same thing is happening in the banking industry also.

    Just look at the Exxon Valdez case, where the Supreme Court, stacked with pro-corporate conservative judges, slashed Exxon’s liability from $5 billion to a paltry $500 million. Unless something dramatically changes with the way our govt functions then BP will continue to thrive.

    http://tinyurl.com/25m6h4x

    Michael

  7. nice blogging for a quiet weekend. i’m already pumped to get into the office next week.

  8. nice blogging for a quiet weekend. i’m already pumped to get into the office next week.

  9. nice blogging for a quiet weekend. i’m already pumped to get into the office next week.

  10. Well put all these are huge mistakes that BP could have not been dealing with if they had prepared themselves.

  11. Well put all these are huge mistakes that BP could have not been dealing with if they had prepared themselves.

  12. Well put all these are huge mistakes that BP could have not been dealing with if they had prepared themselves.

  13. Eric,

    Me too!

    Bella

  14. Michael,

    Excellent article. Thxs for sharing.

    Bella

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