When Memories Fail, So Do Investments

Hurricane Isaac drummed up memories of Hurricane Katrina as it headed toward landfall, but fortunately it failed to wreak the same horrifying havoc on the Gulf Coast. However, Hurricane Isaac has also stirred up another memory: the Deepwater Horizon disaster and subsequent Gulf oil spill.

The extreme weather event delivered ominous indications that BP (NYSE: BP  ) didn't execute the level of clean-up it should have. Tar balls and oil that had been hiding out deep below the surface have been washing up on Gulf Coast beaches once again, and tests have shown they're from that spill.

What Isaac revealed
BP's management probably hopes nobody's noticed. In fact, the energy giant's stock price hasn't reacted all that strongly since the news about oil showing up on Alabama and Louisiana beaches was reported earlier this week.

It's a frustrating turn of events, but it goes to show that once media uproars and public relations campaigns are over, true disasters may have long ripple effects that will continue to drag on companies -- and their profits, when they are appropriately held accountable -- for years to come.

Those who assumed BP must be "cheap" right after the disaster and snapped up shares might want to ponder whether it's wise to keep the shares. This week, the Justice Department officially charged BP with gross negligence and condemned its "culture of corporate recklessness." BP could face up to $21 billion in fines, not to mention potential expenses related to litigation and damage compensation.

In other words, the possible ramifications to BP and its financial condition are not even nearly behind it yet, just like the ramifications of the spill aren't fully known yet.

This is serious risky business, but I'm betting BP's management and speculative investors would rather everyone just forget all over again.

Reckless endangerment
Many, many investors allowed themselves to forget incidents like ExxonMobil's (NYSE: XOM  ) historic Exxon Valdez disaster, too. Heck, ExxonMobil's a well-oiled profit-generating machine and a dividend payer to boot. Who cares about that old stuff?

Regardless, ExxonMobil joins BP in what some might call reckless disregard. In a sobering look at climate change and its surrounding complex issues, Rolling Stone contributor Bill McKibben recently proclaimed, "there's not a more reckless man on the planet" than ExxonMobil's CEO Rex Tillerson. Tillerson recently admitted that global warming does exist (not a news flash to many people, of course, but a surprising admission from a heavyweight in the fossil-fuel industry) and dubbed it an "engineering problem" with "engineering solutions."

McKibben mentions the government's gift of what is basically a "special pollution break" as fossil fuel concerns are basically allowed their dump their waste (carbon dioxide) for no charge. This certainly wouldn't fly for any company where people could see the waste piling up with the naked eye.

In economics, such phenomena are known as "negative externalities": costs are spread, sometimes subtly, to everyone but the corporations that created the problems. These aren't good for the marketplace; in fact, they distort it.

As climate-related disasters worsen over the years and energy companies' profitability and reputations are curtailed, will anyone summon the memory to remind Tillerson about those "engineering solutions" he spoke of? The sad part is it will probably be too late. And of course, given the inevitability that more accountability will be required of companies, shareholders will rue the day they condoned corrupted, unsustainable business models with their investment dollars.

Look up the record
In America, investing isn't the only area that sorely needs more long-term views. Reckless companies might think a lot differently about their actions if more consumers realized the true price of reckless consumption.

In the aforementioned examples, if more people adopted the hybrid and electric vehicles being developed and sold by companies like Ford (NYSE: F  ) , Toyota (NYSE: TM  ) , and techie upstart Tesla (Nasdaq: TSLA  ) , companies like BP and ExxonMobil would quickly rethink some of their business strategies.

Ford, Toyota, and other rivals are certainly reacting to various pressures with their products, but Tesla's Elon Musk has been emphatically clear about one major reason his company exists: "moving us off [expletive] oil as fast as possible."

Still, shareholders are a major part of the equation, and we should welcome corporate accountability instead of deploring it as a profit drain.

Investors too rarely see stocks as more than ticker symbols and numbers. They're complex organisms with stories and histories, not to mention entire departments devoted to the psychological business of helping people forget bad stuff and see the good stuff.

But such forgetfulness is kind of like meeting an imprisoned serial killer and thinking that since he's behaving well he must be fine now -- conveniently forgetting about those dozens of people he murdered in the '80s and the fact that plenty of psychopaths hide their illness very well.

Trouble will probably crop up again if there's no real remedy except for the shoddy Band-Aids of time, forgetfulness, and PR campaigns. As your mom might say, "Look up the record" -- and adjust your investing accordingly.

For more on Ford and its forays into hybrids and electric vehicles, read our premium report on Ford today.

Check back at Fool.com for more of Alyce Lomax's columns on environmental, social, and governance issues.

Alyce Lomax does not own shares of any of the companies mentioned. The Motley Fool owns shares of Tesla Motors, ExxonMobil, and Ford. Motley Fool newsletter services have recommended buying shares of Ford and Tesla Motors, as well as creating a synthetic long position in Ford. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (13) | Recommend This Article (19)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 07, 2012, at 5:36 PM, Darwood11 wrote:

    The real culprit is the numbers. Arguably there are about 3 billion too many people on the planet. But they, and I, are here. So how to deal with that?

    Americans drive nearly 3 trillion miles a year. That's a mind boggling figure! Consider the changes necessary to our infrastructure to accommodate all of the electric cars, should we convert. How many solar panels, wind farms, and how can our antiquated and inadequate electrical power grid possible distribute that power?

    The answer is simple. It can't. In fact, when there was a surplus of hyrdo electric power in the northwest a couple of years ago, I read a report that hydro generating stations were curtailed because the grid couldn't transport the power.

    With California, a huge market immediately to the south, that was an unbelievable failure. It didn't even get noticed in the popular press.

    I've attempted to figure out how much electrical power we would need to generate, and what kind of infrastructure it would take to support it. I've concluded that building this is a task far beyond any one company or industry.

    It will take a monumental change in the US. At the very least, a cohesive and comprehensive energy and industrial policy.

    What's missing? Americans cut back on their gasoline consumption a few years ago, but at that point gas in my area was about $4.50 a gallon. The man and woman in the street has decided they really don't care. And neither does Washington.

    Taxing and fining the oil companies will do little to transform Americans. It's our energy needs that drives this. Building Tesla electric cars for $57K to $100K won't do it either. Not when a gasoline powered Honda Fit can be purchased for less than $15K.

  • Report this Comment On September 08, 2012, at 2:59 AM, SuntanIronMan wrote:

    Yep, our memories do fail. You ask do we remember Exxon Valdez. I remember how Exxon only paid a tiny fraction of what was originally estimated they would have to pay. It is said that BP could face up to $21 billion in fines. But my memory of Exxon Valdez indicates to me that BP will not end up paying anywhere near $21 billion.

    I am not saying it is right that they will end up only paying a tiny fraction of what is estimated. I am just saying what happens in this situations. And what happens is they never pay as much as people initially assume they will have to pay.

  • Report this Comment On September 08, 2012, at 12:51 PM, maiday2000 wrote:

    Worst article written on the MF this year. When you get your climate news from a rag like "Rolling Stone" and think that electric cars have even the slightest chance of improving the long-term standard of living in this country, it's really hard to take any of your investing advice seriously.

    The Bill McKibben article was particularly laughable. When we have unusually cold winters, all we here from environmentalists is that "weather isn't climate." The entire first paragraph of McKibben's article attempted to parlay weather invents into climate alarmism. Data from the NOAA shows drought is less common now than 100 years ago and we've actually had less severe hurricanes recently.

    What is severely lacking in every article about electric cars are the economics. How are those earning less than the median income in this country going to afford a $57,000 car (to say nothing of those in the rest of the world)?

    Oil has raised our standard of living mightily. It isn't perfect, but it isn't the demon people make it out to be. Rex Tillerson has done more in one day to provide economic value to the average person than Bill McKibben will do in a lifetime.

  • Report this Comment On September 08, 2012, at 4:23 PM, sofianitz wrote:

    Please try to keep in mind that Y=C+I+G+(net exports). It is difficult to argue with an identity.

  • Report this Comment On September 08, 2012, at 5:11 PM, iheartweimers wrote:

    All of the wailing and moaning about the climate

    and big oil will do nothing to stop the surge that

    is now going on around the world to drill both on

    land and beneath the sea. Africa is the new frontier

    and many nations are in a contest to exploit it.

    The entire seafloor off the west coast of Africa is

    being leased for exploratory drilling. As the Artic

    warms, protests against drilling in shallow inter-

    national waters by US environmentalists will be

    the joke of the century.

    Incalculable damage to the economy of the US

    can be done by fools who follow the likes of Yoko

    Ono and son Sean, who recently came out in

    protest of fracking, and the rest of the Hollywood

    crowd who preach conservation, while owning the

    gas guzzling whales only parked when they are

    jetting across the flyover states to appear on

    Letterman. BP was not drilling at 5000 feet for

    a better play than they could find in shallower

    water if permitted. There are bacteria in the water

    that eat oil because they developed eons ago to

    feed on oil that was escaping before man existed.

    BP has the message, the question is, do the other

    countries who need ever increasing amounts of

    oil for their energy needs? The governments of

    Iran and China will not listen, India and Russia

    may listen but will do what they need to do for

    their own objectives. Rolling Stone is unlikely to

    sway them. Drill, but drill safely. On & offshore.

  • Report this Comment On September 09, 2012, at 8:31 PM, sevenheart wrote:

    Plants die when they are subjected to evil CO2, it is not an essential ingredient to produce life sustaining sugars and the waste product of photosynthesis is not oxygen. The world has never been warmer or colder until mankind started burning fossil fuels, then stasis was destroyed and the earth entered a death spiral........

    Think I could write scientific articles for Rolling Stone?

    Being in the oil and gas industry and having a basic understanding of geology, we can look at the geologic record and see that the earth has gone through a multitude of global warmth and ice ages before a single frickin molecule of gasoline was refined.

    My vote is with the comment above- worst column on MF this year, perhaps in history, seems more driven by an agenda than by facts, Seems to be a pattern on MF lately.

    As for failing memories, Clinton raised taxes on everyone, including a luxury tax for those who could most afford it. Seems he killed the US yacht building industry among many other luxury industries and those jobs.....? Hmmm surely they weren't laid off and continued to build yachts until the dread and fickle rich coughed up the tax money they owe the world. Think I'm done reading MF, they have lost a lot of credibility with these types of articles.

  • Report this Comment On September 10, 2012, at 9:43 AM, nonqual wrote:

    What swill! The "one major reason Musk's company exists" is corrupt crony captialism.

    Take time to read the National Academy of Sciences and Oakridge National Laboratories studies if you think EVs are anything other than a more expensive mode of personal transportation (both in terms of the national debt and in terms of wasting natural resources.)

    Buy XOM, sell TSLA. Exxon pays a dividend; Tesla has NEVER made a quarterly profit and will have lost more than $1 billion by year end.

  • Report this Comment On September 10, 2012, at 1:43 PM, Corporality wrote:

    I prefer my portfolio to have a deleterious effect on the planet's ecosystems, as I hold that the best companies to invest in are primarily avarice motivated, though is is necessary that they are able to do what is needed to survive and not behaving self destructively. I encourage them in being destructive to the environment, so long as they don't get caught create a outrage and are held accountable, now that IS unacceptably reckless.

    Global warming is future generation's problem and if I make enough money, my progeny will be able to purchase what they need in a post apocalyptic future, so to hell with plants, animals, clean air and water. I've got my compound stocked and well armed.

    Let's all hang a picture of an oil tanker on our wall.

    Another brilliant article Alyce! Thank you.

  • Report this Comment On September 10, 2012, at 4:59 PM, Aveneljp wrote:

    I'm with Alyce and Corporality. I don't doubt for a moment that there are those out there who take a sort of macabre delight in expressing our future in terms of impending apocalypse but dismissing what is happening in global climate change as "good 'ol nature doing what she's always done" is heads in the sand stuff. For me, the disturbing feature is the unprecedented dramatic surge of CO2 in the atmosphere and that brings us back to fossil fuels. However, the oil majors and their shareholders are not the culprits in the emission of CO2, they are just reacting to a market need by finding and supplying a currently essential form of energy - if sometimes with a certain lack of integrity. The real challenge is whether the populace, (here in New Zealand as elsewhere) is able to come to terms with it's role in the changes that are occurring and adjust appropriately. Personally, I'm not confident.

  • Report this Comment On September 11, 2012, at 11:27 PM, irvingfisher wrote:

    I haven't been to an exxon station since the valdez.

  • Report this Comment On September 11, 2012, at 11:59 PM, SuntanIronMan wrote:

    @irvingfisher

    For a few years now Exxon and others have been getting out of the retail gasoline game. The actually selling of gasoline directly to consumers at the pump is not a high-margin business, so the major oil and gas companies have been selling off their gas stations for a while now.

    There is a extremely good chance that the Exxon gas station near you is not actually owned by Exxon. Most US gas stations nowadays are small business (often owned by individuals or by owned by a gasoline distributor who owns a bunch in area). That includes the Exxon-branded stations.

    Those owners of Exxon-branded stations have to pay to use the Exxon name and and I believe they buy gasoline directly from Exxon. So I guess if you still want to avoid the Exxon stations despite the stations not actually being owned by Exxon, that is certainly your prerogative.

  • Report this Comment On September 14, 2012, at 3:08 PM, whyaduck1128 wrote:

    Every time I read an excellent article from The Fool, such as the Best and Worst Advice articles I read today, it is immediately offset by politically-motivated tripe like this one.

    My subscription runs out next month. Let's just say I'm undecided about renewing it.

  • Report this Comment On September 17, 2012, at 5:34 AM, thidmark wrote:

    I'm getting dividends from BP. My mechanic was getting dividends when I owned a Ford.

    I haven't paid attention to Rolling Stone since they trashed Zeppelin's first album ...

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