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As I have posted before, I hold a lot of stocks for this very reason: I'm out on a trip, out of "financial touch" due to the hours I am flying, and WHAM a stock tanks almost unexpectedly. I slept fine through all of this, but Rule 1 is don't lose money so SDRL's actions still kinda torques me off.
So now I'm at a crossroads:
Continue to hold my SDRL shares sans dividend and see what happens (it isn't a loss until I sell for the new folks here).
or
Bailout, save what I can, and learn something from the adventure....
The Guru opinions are all over the place from "a good move that will make them stronger in the credit markets," to "just another lying management team" to talk of further declines and possible bankruptcy....
Are we in the midst of a huge economic shift away from drilling and exploration?
Any thoughts?
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Frederick Buechner
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Why not harvest the loss for tax purposes?
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(11-28-2014, 09:48 AM)rapidacid Wrote: Why not harvest the loss for tax purposes?
Ditto. You can shift those funds into any number of names in the same space, some of which still do (or will) pay a dividend, such as ESV, PACD, etc. and spare yourself the indignity of having sold at the bottom. Also trade up to more conservative management.
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(11-28-2014, 09:25 AM)Robandcindy2 Wrote: As I have posted before, I hold a lot of stocks for this very reason: I'm out on a trip, out of "financial touch" due to the hours I am flying, and WHAM a stock tanks almost unexpectedly. I slept fine through all of this, but Rule 1 is don't lose money so SDRL's actions still kinda torques me off.
Rob, I feel your pain. I don't own it but I can relate to the sequence of events.
I don't want to criticize but don't you think your Rule 1 is a little too rigid for investing in stocks? I've made mistakes where I've sold something at a loss realizing I've made a mistake and shouldn't have been in it in the first place. With that rule, you set yourself up to negative thinking and it could affect your judgement on the actions needed to be taken.
I think Eli over at SA did a little disservice by writing the article recently claiming that even with a 50% dividend cut you would come out ahead. It didn't take into account what could have been the worst case sequence of events and led you into confirmation bias. It even had me questioning for a minute whether I made a smart move buying into ESV and HP. Maybe I did -- we'll see how that shakes out.
What I see is a company that leveraged up in anticipation of a never-ending boom in the oil patch and a management that is willing to lie to the world about its prospects. You can't tell me this was a snap decision made by the board. Boards of large corporations are generally hand-picked by senior management and for the most part are in agreement with what senior management is doing.
If you're willing to sit through this time and don't need the income to live, you may be better off holding. This could take several years to work itself out. If it were me, I'd have my stop-loss order in and sit on the sidelines until things cleared up a little better to decide where to place the remaining funds.
I wish you luck thinking through this one. I'd be pretty disappointed myself if I were in a similar situation. Oh wait, I believe I am. I'm watching to see what Mattel's management is going to do with their declining business. In the meantime, I'm sitting on a good sized loss.
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“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan
In my opinion, SDRL is going lower. Far too much debt($14 billion with only ~$2 Billion in cash flows) and cap ex isn't even covered by EXISTING cash flow, which is sure to drop in the coming quarters. If you want exposure to oil drillers, HP is a far more conservative pick. So as said above, I would sell and move into something else. I have made far too many mistakes holding onto losers because I didn't want to "sell the bottom".
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11-29-2014, 11:19 PM
(This post was last modified: 11-29-2014, 11:20 PM by EricL.)
I think SDRL could easily trade into the single digits and if oil continues lower for any extended period of time could be low single digits by the time its all said and done. They just missed earnings by 50% and management just gave a huge hint at where they see the market. They didn't just trim their dividend, they completely eliminated it.
If you are going to play the downturn in oil, do it in financially strong companies that could withstand 6-12 months of lower prices. CVX, XOM, OXY, COP, EOG are some names I hold and/or would be comfortable buying.
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11-30-2014, 04:56 PM
(This post was last modified: 11-30-2014, 05:04 PM by Robandcindy2.)
(11-28-2014, 09:48 AM)rapidacid Wrote: Why not harvest the loss for tax purposes?
IRA.....great idea though.
Thank you all for the thoughts and advice. All good.
As with ARCP I went with what was essentially mis-information by management regarding the dividend and decided to bail out.
In the big scheme of things a minor loss. Live and learn.
Cheers!
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Rob, I feel your pain as well. I bought SDRL in the 30's, and now it is where it is in the situation it's in. I'm also weighing my options in either holding or selling. On one hand, having a company that pays no dividend is not something that I want in my portfolio. On the other hand, given the situation, the suspension of the dividend might be good for the company and put it in a place where it can pay them within a couple years.
As an oil driller in a world with a major oil dependency, I don't think Seadrill is going to up and go under. It seems to me that current economic factors (prolonged reduced oil prices) are teaming up with their ungodly debt to kick the company's ass. I understand that oil drilling is pretty capital intensive and that some debt had to be assumed, but they completely failed to keep it manageable (or perhaps high earnings due to high oil prices meant that they didn't really need to keep it manageable) and now concessions have to be made, namely the suspension of the dividends. Since they aren't some new little tech company hoping that their newest computer software will be the next technological thing or something, I think we can say that companies like SDRL will be quite necessary as long as we use oil. So, to me at least, if they can ride out the next few years of low oil prices by keeping their costs under control while chipping away at that debt, we might see a reinstatement of the dividend (I can't say what they will be paying, but I think it will be paid and be raised over time as they have done in the past). The fact is that they are still earning money drilling for oil in a world that runs on oil, so those revenues will be coming in one way or another.
I know I'm probably over-simplifying the situation a bit, not really addressing the fact that they said the dividend should be good through next year, and not addressing other factors SDRL is likely dealing with, but for me that seems to be the basics of the situation, if I'm reading everything right. Also, I'm with Dividend Watcher in that I'm young and don't need the income to live, hence my decision to hold for now. I'm in my 20's (very late 20's, but still my 20's) and I have the ability to wait years for my investments to payoff.
This is why I diversify my portfolio. This is why I have a portfolio filled with companies like Coca-Cola, Johnson and Johnson, Exxon Mobil, and all the rest. So I can take measured risks on companies like SDRL and ARCP. I wasn't too thrilled to hear the news, but with Seadrill only being a small part of my portfolio, it was a high-risk investment that I was willing to make.
Cheezus!!! Its like a never ending bottom with SDRL and others (BAS). Hopefully everyone is diversified or not in it.
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I was in it, captivated by the yield, but I've since "diversified" into other offshore drillers.
On the bright side, the more the prices of these companies shrink, the less they are as a percentage of my portfolio.
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(12-09-2014, 12:13 AM)earthtodan Wrote: I was in it, captivated by the yield, but I've since "diversified" into other offshore drillers.
On the bright side, the more the prices of these companies shrink, the less they are as a percentage of my portfolio.
There's always a silver lining isn't there. 
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There you go, Eric. I kept my mouth shut because I didn't want to kick a man when he was down. 
In the old days, when you used to get certificates, it made interesting wallpaper. Just sayin'. 
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“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan
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