Let’s start by remember that young people are already rich. I’m not even that old, and I’d swap everything I have to be 18 again. If you’re young then you have energy, radiance, potential, and time. The world is yours for the taking.

We should also acknowledge the positives. Most young British people aren’t fighting in a war, though we shouldn’t forget those who are. For all the bad press, the UK has never been so tolerant if you’re young, black, gay, or a woman. Life expectancy for the bright middle-class I’m thinking of has never been higher. And you’ve probably been told you can have it all, which is always nice to hear.

Unfortunately, you can’t have it all – not without a fight. The generation that wrested control of the cultural agenda back in the 1960s has been systematically (albeit unthinkingly) transferring wealth to itself in three main ways:

• House price inflation
• Greater government debt and unfunded pensions
• Having fewer children, and not compensating for the consequences

I salute the declining birth rate, given that the world’s environment is coming off the rails (another way the young have been shafted, incidentally).

But the fact is ever fewer workers will need to pay for pensions that are now set to rise with earnings, in a country where demographics will work against a growing GDP and where it can easily cost ten times a would-be first-time buyer’s income to buy a house.

Optimists will tell you this wealth will trickle back to the young – that nobody, not even a baby boomer – lives forever. And it’s true much will be spent on health care as the wealthiest generation we’ve ever seen battles to the end with the clock.

Some will come back via inheritances, too, though that will reduce social mobility. Also, if house prices start to fall as the boomers pass away or sell-up, well, the younger generations may well consider that a mixed blessing. Just ask the Japanese.

Nobody knows what the future really holds, or whether the gloomiest predictions are true. But let’s assume for this post that they are.

What then should a bright young person do in such a climate – the type of person who’d have gone to University long before these modern times, when two Ds and an E cut it as acceptance grades?

Obviously I haven’t got definitive answers, but I do have 10 career tips for young people to think about. They play to the strengths of being a 21-year old today, rather than the game plan of those 65-year olds who had their chances.

1. Consider a hands-on vocation

It’s will be hard to outsource dentists, GP, vets, headmasters, or barristers overseas. Other professions from architecture and engineering to accountancy could potentially be bid down by overseas competition.

If you think you might like a job that requires you to be in a room with your hand up something’s bottom, it could pay to follow your heart.

2. Do a straight degree at a top university

The rest of our bright young things should certainly go to university, but move heaven and earth to go to one of the top dozen. Don’t be persuaded that a Second Best Choice has a great course in Byzantine history if you can do something vaguely similar at Oxford, Cambridge, Bristol, Edinburgh, Imperial, or the half a dozen others that count. There’s too many graduates now, and it’s too expensive to take chances.

And while we’re on the subject, don’t do Byzantine history unless you’re truly brilliant at it (and you love it, and you’re willing to suffer for it).

If you’re going to be mediocre or even just passable, I’d suggest you try to be passable in a subject in demand from an institution with good connections.

Try to choose a flexible career that puts a premium on new thinking over old knowledge. The world moves too fast. Relentlessly refocus before you’re forced to.

3. Chase money in The City

Even when I was a graduate two decades ago, banking, and so-called Magic Circle law and accountancy wasn’t the gravy train it was today. Perhaps financial regulation will crack down on the City moneymaker, but I doubt it.

I wouldn’t enter this world unless you’d already considered it, but if have and you’re mediocre yet determined, you can wildly outperform compared to any other realistic career choice.

Nobody told my generation this. Perhaps nobody knew.

4. Otherwise avoid London

If you don’t work in money, you’d do well to avoid getting addicted to London. It’s a great city, but it’s insanely, life-drainingly expensive. There are plenty of places in Europe – if not the UK – where you can live a more exciting and creative life on half the money.

And no, it wasn’t always thus. Martin Amis lived in Notting Hill as a young writer, and the Brit Art crowd rented cheap warehouse space in Hoxton Square near the center of London in the early 1990s. Not anymore.

The trouble is once you make friends here and get it into your blood, you’ll have to dig in and do the old moving to Zone 3 then moving out to the suburbs path to cling on. Across Europe you could still be living in the heart of things, yet doing something creative.

5. Emigrate

In fact, let’s cover that off: If you want to do anything creative or artistic, try and do it overseas. London will cripple you, and will try to trick you into working for years for peanuts, racking up debts. Move to Berlin, Belgrade, or if you’re really radical see what’s possible in Wellington, Rio, or Seoul.

I’m not equipped for that way of life, but if you are, go for it.

6. Do what recent immigrants do

If you do decide despite the odds to stay in the UK, then keep an eye on what recent immigrants are doing. I think they’ve a terrific nose for opportunity.

Immigrants lack two things – a predetermined script and inhibitions. Polish builders who’d baulk at sharing a flat in Warsaw live ten to a house in Brixton. A young Malaysian woman who’d be six months from a husband at home will start a company in London. Keep an eye on them, and be inspired.

Only this weekend I met a still-young-ish personal assistant from Eastern Europe who through risk taking, thrift and some help from her peers had managed to create a three-property buy-to-let portfolioa few years ago. That opportunity has passed, but I’ve also met newcomers setting up websites and coffee shops.

7. Live young

Don’t be in too much of a hurry to grow up. Life is long, touch wood; unless the world really turns rotten, you’ll likely live until 80 or more.

I see 23-year old couples on TV property shows desperate to become settled suburbanites when they’re still mired in student debt and have barely tasted the world. Even modest homes cost money to run, and to fill with furniture and stuff. Cars cost money. Going to good restaurants in fine clothes costs money.

Try to stay hungry, trendy and cheap for longer. Live with friends, and cling on to the things you’d do as a student. Spend a few years behind where your salary has put you. Travel, but on less.

(You’ll thank me for this later, even aside from the financial angle).

8. Save hard and take chances

While you’re living like a student, save as much as you can. Pay off any debts except student debts as fast as you can, create an emergency fund, and then try to start investing for future financial freedom. Early money is gold dust, thanks to compound interest.

You likely won’t be able to buy a house without stretching yourself to breaking point or taking your parent’s money, anyway. Instead, rent cheaply and put the savings into a tracker fund to load up on cheap UK stocks, and put some money in overseas equities, too.

There’s a good chance that a great opportunity to buy shares might be one of this generation’s lucky breaks; the oldies have pension funds that are being forced to buy bonds yielding barely 4%. Take a chance on shares, but remember you’ll need to have a long-term horizon (ten years-plus).

9. Create multiple income streams

Another opportunity that young people have is to create portfolio careers and multiple income streams right off the bat. The Internet has made it far easier for smart, ambitious people to set up side-projects that deliver money.

Beware of the easily started options that rarely perform (for instance, this blog is successful in UK terms, yet I’m still not making even 10% of my income from it after more than two years of commitment).

Selling something unique is more likely to deliver. The website My Wife Quit Her Job has a lot of good, practical advice on e-tailing.

10. Look out for yourself

I don’t mean you shouldn’t care about your family, friends, or even fellow citizens.

What I mean is don’t expect your employer or the Government to look out for you. Read up on financial matters (subscribe to Monevator – it’s free!) and take control of your future.

Remember you’re likely to be paying more tax than most UK citizens have for decades, for many years to come. You’ll be doing your bit for others, whether you want to or not. So make sure you also take care of yourself.

Image by Boris the Blade

Do you have any career tips or money advice for young people? Please do share!

My regular weekend reflection on investing, followed by some good reads from across the web.

I mentioned yesterday that I thought BP shares were a good buy at 435p, but that there were certainly risks to buying.

The biggest short-term risk is that BP’s dividend is cut or suspended, even if it has the cashflow to support it as well as its clean-up commitments. Politics or PR might force a gesture.

A dividend cut or suspension would have implications for all UK investors, not just BP shareholders. Roughly £1 in every £6 paid out by UK shares comes from the oil giant.

This also has an implication for whether the FTSE is currently cheap compared to the risk-free rate of return from UK government bonds, aka gilts.

[continue reading…]

Important: What follows is not a recommendation to buy or sell BP shares. I’m just a private investor, storing and sharing notes for interest and entertainment. Read my disclaimer.

Despite the recent micro-rally to 435p as I write, BP shares are still down over one-third on where they were before its Deepwater Horizon oil rig exploded on April 20^th.

On a trailing basis, BP shares yield nearly 9% – an incredibly high yield given that this company pays £1 of every £6 churned out by UK companies every year in dividends.

Clearly, the market fears BP may cut its dividend.

If BP isn’t able to maintain its dividend, it’s going to hit UK investors (including pension holders) hard. The share price fall from 650p to 435p has single-handedly knocked around 185 points off the FTSE 100 index, too.

Yet if BP can maintain its dividend, the shares look to cheap. Now could be a textbook example of an opportunity to invest in a crisis for profit.

The two issues with buying BP shares

There are two main dimensions to whether you should buy BP shares:

Moral: Is it right to profit from an oil rig explosion that cost 11 workers their lives and has caused an ecological catastrophe?

Financial: Is buying BP shares likely to deliver a greater return than buying the market as a whole?

Anyone want to buy the shares for profit has to answer both questions for themselves.

The morality of buying BP shares

Let’s deal with the moral dimension first. Investors, like everyone else in society, walk a tightrope of moral compromises every day. People invest in tobacco firms, companies that make engines that go in jets that bomb civilians, and transport companies that contribute to global warming.

Unless you’re going to opt out of society completely, that is the reality.

I’m not saying ‘anything goes’ – I’m saying we have laws and politics that set and change the rules, not a system of voting by buying shares. If you don’t take an investment opportunity because of the ‘ick’ factor, you’re likely being inconsistent.

You might choose to be inconsistent, true. I have never bought tobacco stocks because I hate smoking and the export of this cancerous business model to the Third World. So I’m not claiming to be immune to the ick factor.

Yet equally, I know I have money tobacco shares in my tracker funds, and also my income investment trusts. My hands are not clean.

Returning to BP, I’m nonplussed by the more extreme U.S. commentators’ outcry over the oil well. I understand the pain having such a hideous disaster off your doorstep must cause, but that doesn’t make the more extreme views rational. In particular, elements of the US media are applying a ‘one rule for the USA and another for everyone else’ mentality to the disaster.

American commentators need to look further before singling out BP. Just last month, for example, ExxonMobile spilled one million barrels of oil into the Nigerian delta. I’d wager roughly 0.1% of Americans know or care. According to The Guardian, more oil is lost in Nigeria every year than has been shed so far in the Gulf of Mexico.

And that’s to not be drawn into the murky world of overseas wars waged to secure oil supplies, or even the idea of banning offshore drilling around the US for righteous moral reasons while greedily sucking it in from Brazil, Australia and elsewhere, where the risks are just as great but US college students don’t expect to find sandy white beaches.

Finally, US oil consumption drives the global market. It’s hypocritical to condemn out of hand companies pushing the boundaries to try to fulfill those needs.

None of this means I’m not appalled by the leak. I wrote recently about how ecological disaster is the biggest risk to my wealth. I’ve spent hours reading about the doomed efforts to protect the marshes and wetlands from oil, and ideas they haven’t tried such as digesting the oil by promoting bacterial growth.

In fact, the one good thing to come out of this is that ecological regulations will hopefully be tightened up worldwide.

For instance, why don’t they drill a relief well as standard, just in case? It’s ridiculous we have to wait three months to stop this leak.

The financial case for buying BP shares

Assuming you’ve not got a moral problem with buying BP shares, is there a financial case for doing so? I think there might be.

I’ve written before about how in a crisis the market can overreact to news, and misjudge the long-term impact on the company.

Certainly the news here looks bad. But has the 35% drop in the share price already compensated for this pain?

As of June 3rd, the company is valued at £35 billion less than it was on April 20^th. The P/E rating of BP shares (before they were de-rated by the slick) was roughly 11.

One way of reading this is that the market sees BP’s future earnings as being permanently impaired by:

• £35 bn / 11 = £3.2 billion a year, forever.

In reality of course, the hit to BP’s earnings will be far lumpier. The cleanup has already cost around $1 billion in actual cash. The final bill will be much higher. There will also be the eventual cost of compensating local businesses, legal damages, and potentially even costs for long-term health complications.

I’ve seen estimates of the final cost vary from $1 billion to more than $30 billion. Notably, however, even the highest figure is already in excess of the lost value as per the market cap – approximately $50 billion.

And remember, that’s a high estimate. The Exxon Valdez disaster looked like costing that company a fortune, but the actual amount it has to pay has turned out to be far, far less – around $4.5 billion after appeal. In 1989 dollars, that’s small potatoes. Two decades have passed since then.

I’d hope BP will be brought to account far quicker for the sake of those affected and the region, but it’s still going to take years to sort out.

There are other reasons to think the hit to BP won’t be fatal, too:

Obama is all hot air in the long run

America is a legally driven country, not a dictator state that will throw its toys out of the pram to make an unfair example of one company. BP’s lawyers will be given the opportunity to defend the company. The US will not want to seem unreasonably vindictive, especially in 5-10 years time when all this is forgotten yet the court cases are only just getting resolved. Obama is making a lot of noise because he’s as appalled as anyone else by the catastrophe I’m sure, but also because it costs him nothing.

BP isn’t the only company on the hook

Right now BP is getting all the blame, but it’s only a 65% owner in the Deepwater Horizon rig. Services companies like Transocean and Halliburton will also be taken to the courts – not least by BP – and may end up shouldering some of the costs.

BP can afford to pay

As far as I can tell from its March 31^st balance sheet, BP has $7 billion in cash. Knock off maybe $1 billion for the cost so far, and it still has a lot of free cash to play with. It’s also got less debt than some rivals – BP’s gearing is about 23% compared to 35% for Conoco, for example. Despite recent downgrades, it could easily take on £10 billion or so in addition debt to keep its dividend while shouldering further costs.

BP is a vast company

It has other operations that are going well. BP’s upstream operations produce about 4 million barrels of oil a day, while its downstream activities (from refineries to petrol stations) process 2.7 million barrels. Even assuming it’s kicked out of the Gulf, which I don’t think is likely, it’s got plenty else going on to support a valuation well north of 435p per share.

BP shares are surely a buy, albeit risky

If you’re ever going to look at a crisis play, you’ve got to look hard at BP. From the press and political witch hunt to the scale of the disaster to the size of the share price fall, everything here except the ecological impact looks overblown.

And as the ecological impact is always – tragically – the least regarded element to our human folly, I think the shares will end up much higher than 435p. ExxonMobile’s shares are nearly ten-fold higher than when they trashed the Alaskan coast in 1989.

I even think BP’s response to the crisis has been good. Sure there have been some gaffs, but what do you expect when spending $1 billion in barely two months? US politicians should be glad that the company was already trying to rebuild its reputation and has clearly grasped the scale of this crisis in my view. If it had happened to a cheaper, recalcitrant company, they’d know it.

Compare BP’s response to President Bush’s response to Hurricane Katrina. From where I’m standing it seems BP has moved faster, more meaningfully and more transparently than the US government itself did when faced with that natural disaster and had no third-party private company to deal with it.

I’m not suggesting it’s certain BP will recover from here. As I write the well is still gushing oil, and every element of the criminal case as well as the normal corporate investigations are yet to begin. There are many, many unknowns.

But on a risk/return basis, I think the shares look good value.

All that said, I’m not buying BP shares directly myself. I’ve got other individually risky stock picks going on elsewhere (such as Lloyds) and I don’t want to take on another uncertain investment; my trading activities are only a complement to my more passive or long-term investing, and the number of positions I take is not unlimited.

I did however invest significant sums into two income investment trusts earlier this week that each have around 6% of their money into BP shares.

By in buying in when BP shares cost 435p, I expect the trust’s NAVs to rise due because of their BP holdings in time. It’s far from a racing certainty, but on balance BP shares look too cheap to me.