Baron Rothschild once famously said, “The time to buy is when there’s blood in the streets.”
The statement is as valuable as it is profound, and it has been appropriated by countless investors over the years. Of course, I repeat it only because it holds bearing on a potentially worthwhile investment on the horizon…
If you’re unfamiliar with the saying, it means the best time to invest is when a particular market, sector, or stock is feared and beaten down. While regular investors cut their losses and sell, contrarians should buy amid the fear and wait for the stock to rise.
That’s how Rothschild made his fortune; it’s how investing legends like Warren Buffett and Benjamin Graham made theirs.
In recent history, a great example of buying while blood ran through the streets was the financial crisis.
Investors like Buffett, who bought stocks back in 2008 and 2009, have seen incredible gains since. Many investors who lost their retirement accounts and other portfolios have since rebuilt those losses and, in some cases, made even more.
That’s the power of the strategy, and it’s why so many people continue to live by the phrase.
Another great example is BP (NYSE: BP).
Back in 2010 when BP’s Deepwater Horizon rig exploded and proceeded to leak oil into the Gulf of Mexico for nearly three months, many investors panicked and sold off shares.
During the fiasco, as you can see above, BP’s stock price collapsed to about $28 per share. But as the chart also shows, if you bought BP stock from that point, you would’ve seen your investment double in about four years.
Now, four years is a long time to wait, but if you’re doubling your money, it’s always worth it.
I bring all of this up not to tout BP or endorse the company’s shares but instead to use it as historical evidence for another potential buy you may have heard about…
Plains All American Oil Spill
This Wednesday, the U.S. Coast Guard and the Environmental Protection Agency ordered Plains All American Pipeline LP (NYSE: PAA) to continue its cleanup of a large oil spill off the coast of California.
On May 19, a section of one of Plains All American’s pipelines near Santa Barbara burst and gushed over 100,000 gallons of oil into the Pacific Ocean.
A roughly nine-mile-long oil slick formed off of the coast and has since prompted a backlash against the company and other oil interests in the area.
The Coast Guard claimed that PAA is the responsible party and will have to continue cleanup as well as show a good faith plan for assessing environmental damage by June 6.
Progress has been made, and independent investigators will soon examine the section of pipeline that burst to determine the amount of negligence involved in the spill.
Because of this incident, environmental groups have called for officials to shutter proposed drilling projects nearby, citing too much traffic in pipelines as a cause for the spill.
Of course, this has yet to be determined, but other companies operating in the area are now paying attention to how business could be affected by the mishap.
A program director for the Center for Biological Diversity said, “It would be a grave mistake for the state to approve a project that will feed more crude into a pipeline system that just spewed thousands of gallons of oil into the Pacific.”
Threats to the flow of oil in the area and the bad press from the spill has sent Plains All American stockholders running for the exit…
The question now is whether it’s a good time to buy Plains or if investors should stay away altogether.
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Buy This Instead
Although some investors have sold the stock, I remain skeptical as to whether Plains is worth a buy right now.
So far shares have only dropped by about $3, and the spill aftermath is still in its early phase of cleanup. If it’s found that the line burst because of negligence on the part of PAA, the stock will probably fall further on the possibility of penalties by the government.
Plus, the company has seen huge growth over the last decade, so buying now after only a $3 drop would still net little to no gains on the company’s stock.
For now, it makes sense to stay away from PAA unless you already have a stake in the company. If that’s the case, it would make sense to hold until the details of the investigation and cleanup become clear.
Although this stock isn’t for us, the pipeline spill has brought to light the importance of pipeline integrity.
Companies like Plains All American, Enbridge, and Energy Transfer Partners hire independent contractors to inspect pipelines in order to ensure regulatory compliance and the safe flow of oil.
As new pipeline builds happen throughout the U.S., spills like this will bring more business for pipeline inspectors as midstream companies attempt to avoid the fate of Plains All American.
Until next time,
Keith Kohl
Check us out on YouTube!A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing’s Energy Investor and Technology and Opportunity.
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