When You Should Not Reinvest Dividends

BP shareholders learned a hard lesson in 2010 about the risks that do not show up on balance sheets. If you had to choose between Chevron, Exxon, Royal Dutch Shell, and BP on January 1st, 2010, it would not be clear which of those companies carried the highest risk of earnings impairment.

Even if BP disclosed the specifics regarding the Deepwater Horizon oil rig to investors, it would not be clear that the machinery carried a high risk of explosion–over $30 million was spent on safety equipment that conformed to the industry’s safety standards. In fact, BP’s behavior was so consistent with the rest of the oil industry that I disagreed with Judge Barbier’s ruling that BP committed gross negligence rather than negligence.

Regular negligence refers to when you should have done something but messed up; gross negligence was born out of Alfred the Great’s “Doom Book” put together in … Read the rest of this article!