BP’s Stock Price and Market Lessons
On April 20, 2010, the Deepwater Horizon drilling rig exploded in the Gulf of Mexico. Concurrently, the price of BP’s shares began to implode. On April 20, BP’s stock price closed at .48. By May 10, it had dropped to .75. During this time, the company’s market capitalization (calculated by multiplying the stock price by the number of trading shares outstanding) dropped by over billion.
At this point, many financial advisors began recommending that investors purchase BP stock. They believed that the amount of money that it would take to clean up the oil spill would not come close to the billion that BP’s aggregate share value had lost. Even Jim Cramer, CNBC’s high profile stock guru and host of the show Mad Money, stated that the stock was a buy for this reason. Yet, about a month and a half later, BP’s stock now sits at about per share, representing a market capitalization loss of close to 0 billion. The initial investment advice seemed