Gulf Oil – A Lucky Gift from Boone Pickens

Investment results are easily measured on an absolute basis. Because they are so easily measured, academics, financial advisors, asset allocators, consultants, individuals and a host of others have devoted a lifetime to scrutinizing the results of others. They look to analysts, portfolio managers, the various public and private enterprises, and the markets in an attempt to find a person, some identifiable trait, or a methodology that can be replicated to produce superior returns. For many, the search continues, while others have ultimately decided that if this skill exists, it is not worth the effort to find it, and they just buy enough differing investments and hope to be in the right place at the right time.

Which brings me to this month’s story of Gulf Oil and Mr. T. Boone Pickens, Jr. In the early 80’s, I can say it was a wonderful time to be a financial adviser, a term used today for the majority of security salesmen, but in those years, not yet invented. Interest rates were at an all-time high. Banks and Savings and Loans were still under the rules of Regulation Q which imposed restrictions on the maximum amount of interest payable on time deposits and prohibited the paying of interest on demand deposits. At the same time, bonds and money market funds were paying double digit interest rates. Making a living selling these fixed income investments was easy as the demand was high with minimal competition.

As for common stocks, the demand was beginning to return. The memories of the great crash in the early seventies were weakening, the short recession of 81 to 82 was over, and the prices of common stocks were once again moving higher. Having paid little attention to common stocks, I began in earnest to develop some level of skill needed to include common stocks in the quiver of options available to my clients. The small broker dealer I was working for had no research department, nor the desire to provide assistance, so I was forced to learn the old fashioned way, through reading the work of others and finding stocks to recommend by pouring over the data included in the S&P Stock Guide. In addition I relied on the analysis provided by the Value Line Investment Survey.

While doing this data mining, Gulf Oil stood out to me. I wish I had retained my notes from that period of time, but unfortunately they are long gone. I don’t remember exactly what made Gulf Oil stand out. It may have been a dividend yield, a price earnings multiple, a book value, or just the fact that oil prices had declined substantially in the prior year after their huge run up over the past decade, and the world of mergers and acquisitions of oil companies was in vogue. Whatever it was, it was enough to encourage me to buy shares.