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  • Get Skeptical About This MLP Claim [View article]
    Galicianova wrote "not sure I really understood the implications of the data."
    The data says (1) that the earning projections are more volatile in MLPs that in most other sectors. The data says (2) that earning projection volatility strongly influences total returns. Put in other words, those MLPs with rising earning projections strongly tend to outperform those MLPs with falling earning projections. The historical data indicates (3) that large cap midstream MLPs have a history of lower earning projection volatility.

    When building your MLP portfolio, you are building a roller coaster. You are in control of how high the hills and how deep the valleys will be. Large cap investment grade MLPs will provide a smoother ride.

    Galicanova asked "will you compare EPD to MMP - and WES to NGLS."

    I will do this using data from 1-24-14 - and not from the spreadsheet that is in the data above. The numbers will be close to the same - but not exactly the same. I also should note that I use other spreadsheets to "set" my CAGRs and RRRs. There is a lot of due diligence done in setting those. So in the comparisons of valuations that are done below - we are using a starting point that is no where near the true "start".

    EPD has a priced implied distribution CAGR of 5.54%. How is that calculation made? Based mainly on credit ratings, I have assigned a required rate of return of 9.7% to EPD. EPD has the lowest required rates of return of all MLPs because its bond rating is the best. One has to go back to 2007 before one can find a double digit DCF shortfall in its beginning of the year DCF projection. Using my faulty memory, EPD has a larger off-shore component back then - and that was a bad hurricane year. EPD has super strong distribution coverage. EPD is a very, very low risk MLP. The "9.7" RRR (required rate of return) minus the current yield of "4.16" is the calculation done to arrive at the price implied distribution CAGR. My conservative 5 year forward distribution CAGR projection for EPD is 6.70. One should want to buy growth at a reasonable price. One can "buy" EPD's 6.70% growth at a current cost of a stock that only has 5.54% of growth "priced-in" to it.

    MMP has a priced implied distribution CAGR of only 6.48%. How is that calculation made? Based mainly on credit ratings, I have assigned a required rate of return of 10% to MMP. There are only two other MLPs with lower required rates of return. MMP is a very low risk MLP. The "10" RRR (required rate of return) minus the current yield of "3.52" is the calculation done to arrive at the price implied distribution CAGR. My conservative 5 year forward distribution CAGR projection for MMP is 8.80. One should want to buy growth at a reasonable price. One can "buy" MMP's 8.80% growth at a current cost of a stock that only has 6.48% of growth "priced-in" to it.

    WES has a priced implied distribution CAGR of only 7.44%. How is that calculation made? Based mainly on credit ratings, I have assigned a required rate of return of 11.20% to WES. There is a high fee component in WES' EBITDA. WES is a very high growth MLP - and the higher the growth, the greater the psychological fear that such growth will fall. Some analyst will say that the earnings for WES is highly predictable - so it is low risk. That is true. On the other hand - I know that the market views a growth as also having high risk. So this WES unit holders believes that WES merits a reaonably high required rate of return. The "11.20" RRR (required rate of return) minus the current yield of "3.76" is the calculation done to arrive at the price implied distribution CAGR. My VERY conservative 5 year forward distribution CAGR projection for WES is 9.30. Distribution growth last year was 16%. One should want to buy growth at a reasonable price. One can "buy" WES' 9.30% growth at a current cost of a stock that only has 7.44% of growth "priced-in" to it.

    NGLS has a priced implied distribution CAGR of only 6.60%. How is that calculation made? Based mainly on credit ratings, I have assigned a required rate of return of 12.20% to NGLS. NGLS has BB rated bonds - and the current 2013 DCF projection is 15% lower than the 2013 DCF projection was at the start of the year. The "12.20" RRR (required rate of return) minus the current yield of "5.60" is the calculation done to arrive at the price implied distribution CAGR. My conservative 5 year forward distribution CAGR projection for NGLS is 6.90. One can "buy" NGLS' 6.90% growth at a current cost of a stock that only has 6.60% of growth "priced-in" to it.

    Seeking Alpha has grown its font size - and I have not yet adjusted to that change. As a result, the historical DCF projection accuracy spreadsheet failed to display all of its columns. I will try to fix that problem in future articles.
    Jan 28, 2014. 09:40 AM | 10 Likes Like |Link to Comment
  • Simple Rules For MLP Investing [View article]
    I strongly believe that we are best served to take what the market is selling at a discount - and avoid what the market is selling at a premium. When it comes to MLPs and total returns, "yield" sells at a premium and "growth" sells at a discount. I find that condition to be logical, given investor psychology. "Yield" is a bird in the hand, while "growth", in comparison, is the "two birds in the bush".

    It is my perception that retail investors overwhelmingly buy MLPs for yield. That is done because that is what they perceive others are doing. We gain some psychological comfort in being part of the crowd. I am human. I feel this way, too. This article presents a data set that argues that this kind of behavior is suboptimal. We would be best served if our MLP holdings were heavily weighted towards selections that sought growth first. If you have a personal need for more yield (or income), then one can attain that yield via asset allocation decisions (meaning one can own a high allocation of MLPs) or by seeking yield in other portions of one's portfolio.

    This retired investor - who lives off a lot of dividends and distributions and very little in the form of pensions - may be more psychologically messed up than average. There is a heavy psychological component in my spending. I have an emotional need to have a rising portfolio and an inflation beating growth rate in my dividends and distributions before I can freely spend what is coming in. I also have a desire to "beat the market" before I can reward myself with spending all that is coming in. I suspect that I am not completely alone in having that condition. So for similar investors, we have a second reason to "think about growth first”. Since the beginning of 2010, the S&P 500 has slightly beaten every non-leveraged MLP ETN. But if you owned growth MLPs, you have probably beaten the S&P 500.
    Jan 20, 2014. 12:33 PM | 10 Likes Like |Link to Comment
  • MLPs Extremely Overvalued Based On Historical Relative Yield [View article]
    In making inter-temporal comparisons between two sectors, things can get messy. And your data presents a history that keeps things way too neat. Your data compares apples [MLPs] to oranges ]Utilities and Telecoms] as if they have both stayed the same kind of fruit. I would argue that the MLPs have significantly morphed over that time period.

    In order to make the case that MLPs are overvalued you have to go far enough back in time when
    [1] MLPs were all small caps - and most did not even exist. Liquidity changes an equity’s required rate of return. MLP yields are logically dropping due to significant changes in MLP liquidity. Telecom and Utility equity liquidity has not improved over that time period
    [2] While I am not certain when the large caps became investment grade rated, you are probably including dates when they were not. This change in the bond ratings also lowers the retired rate of return on MLP equities.
    [3] This investor who had light weightings in REITs and banks knows that dividend and distribution history is important. The market now knows that MLP distributions are much more secure than we expected prior to 2007, 2008 and 2009. A significant change in the perception of equity’s payout security changes the equity's yield.
    [4] You have to include in the time period where you are calculating your spreads a time period where Telecoms were partially included in the internet boom at the turn of the century, a period where Telecoms had depressed yields. To a far smaller degree, this is also true with utilities.

    I strongly believe that you have failed to account for the morphing of the MLPs – and that has lead you to conclusions that are less than correct.
    Sep 2, 2011. 02:58 PM | 10 Likes Like |Link to Comment
  • 8% Yield From MLPJ: A Diversified Small-Cap Energy MLP Fund [View article]
    The author wrote that MLPJ's "diversity is appealing to those such as myself that are not confident in picking individual stocks in these sectors."

    MLPJ owns many of the E&P MLPs - and they are a mine field. MLPJ mainly owns the smaller, non-midstream and newer MLPs. This investor would strongly prefer the smaller discounts that one can get from "bigger, older, diversified, midstream, investment grade" MLPs than the larger discounts one can find by taking on more risk.

    Allow me to copy and paste something I posted on the Investor Village MLP message board that expresses my current thoughts on the sector:

    I would also suggest something that is counter intuitive - buy those MLPs that dipped the least. If your mind is anything like mine, your mind will fight you on that suggestion. Your mind will see a 25% drop for stock A and tell you that it must be a better bargain than stock B that 'only dropped' 15%. In a world where the price of everything is falling, it is hard to remember that RRRs (required rates of return) exist. Don't do that! This pricing event should serve as a strong reminder that you want to have a low RRR portfolio.

    Do not let your search for bargains lessen the quality of your total portfolio. It's hard to find an analogy that works -- but for the purpose of your (all you guys and gals reading this) edification, I will make an effort. So off we go on the best analogy that comes to mind.

    One can find sweaters on sale at 50% off all the dang time. You can find shirts at 25% off all the dang time. But it is hard to find a belt on sale. At the end of a fashion season, one can find sweaters and 75% off, flannel shirts at close to 75% off, woven long sleeves at a discount of maybe 50% off. But belts are still selling at full price. This mid-term pricing stress on oil has the sweaters (which would be like the E&Ps) on sale at huge discounts. It has the long sleeve shirts (which would be like low coverage midstream MLPs and many of the G&Ps) on sale at good discounts. The investment grade MLPs are like the belts. Finding one of those belts at 20% off is a better 'find' and long term purchase than finding a sweater at 75% off.

    One needs to find and keep that kind of shopping perspective. That is a tough assignment. Your mind is conditioned to 'buy the 75% offs and ignore the tiny discounts'. Your mind has been conditioned incorrectly.
    Dec 17, 2014. 05:58 AM | 9 Likes Like |Link to Comment
  • Get Skeptical About This MLP Claim [View article]
    bleepingjelly asked if a was "negative on PAA".

    One has to acclimate to any spreadsheet presentation of data. The spreadsheets provided here are probably different than most that you have ever seen - because the components are different AND the concept are different. If anyone came away from this article with the impression that I was negative on PAA - then WE have failed to communicate.

    Let me provide two examples - because the repetition may be useful.

    PAA has a priced implied distribution CAGR of only 5.21%. How is that calculation made? Based mainly on credit ratings, I have assigned a required rate of return of 10% to PAA. There are only two other MLPs with lower required rates of return. PAA is a very low risk MLP. The "10" RRR (required rate of return) minus the current yield of "4.79" is the calculation done to arrive at the price implied distribution CAGR. My conservative 5 year forward distribution CAGR projection for PAA is 8.50. One should want to buy growth at a reasonable price. One can "buy" PAA's 8.50% growth at a current cost of a stock that only has 5.21% of growth "priced-in" to it. That is a bargain!

    RGP has a priced implied distribution CAGR of 4.77%. I have assigned a required rate of return of 12% to RGP - it had a credit rating of BB- and the earning projection accuracy for RGP has not been that good. There are several other G&P MLPs with high required rates of return. The "12" RRR (required rate of return) minus the current yield of "7.23" is the calculation done to arrive at the price implied distribution CAGR. My conservative 5 year forward distribution CAGR projection for RGP is 4.00. One should NOT want to RGP's 4.0% growth at a current cost of a stock thathas 4.77% of growth "priced-in" to it. That is NOT a bargain.

    I should also note that I am a shareholder in PAGP - which is the general partner of PAA.
    Jan 27, 2014. 07:57 PM | 9 Likes Like |Link to Comment
  • Get Skeptical About This MLP Claim [View article]
    DanH111 wrote "the overbought market gives me pause for concern regarding initiating new positions".
    While the stats that I gather do a better job of telling me WHAT to buy, instead of WHEN to buy, the few timing stats that I do have tell me that this is a slightly below average time to be starting new MLP investments. But that is true in all the other sectors where I track data.

    I make a conscious effort to spread the timing of my purchase decisions. I also try to "pair" my decisions - using the line of thought that - if it is a bad time to buy, then it must be a good time to sell. Investing is a psychological battle with one's self. In the dark ages of my investment life, I succeeded at talking myself out of making too many good purchase decisions. I have not totally whipped that problem - but I am making progress. "Spreading the timing" of decisions and making "decision pairs" are two methods I employ to talk myself into doing what the numbers are directing me to do.
    Jan 27, 2014. 04:36 PM | 9 Likes Like |Link to Comment
  • Right Now Is The Wrong Time To Be Buying Healthcare REITs [View article]
    Ross asked: When would be the right time to buy VTR?

    My skill is in buying "what" - not when. But I do know that VTR has negative price momentum right now - and window dressing and tax loss selling are reasonable explanations for the "why". Also - with yields on the 10 year treasury headed higher, there will be pricing pressure on all REITs.

    I would buy one third right now - because VTR is really cheap. I would buy one third on January 2nd - which may be the day before VTR announces a dividend increase - and after the downward influence of tax loss selling and window dressing. And I would buy one third in April --- IF VTR is showing some positive momentum.

    2013 has been a year where momentum really mattered. REITs had a ticket up for the first third of the year on the party bus to irrational exuberance. Then the bus changed directions.

    Normally - I would not care about the "when". But it is clear to me that in the here and now, "when" matters a lot. So in the here and now, I would spread my "when" around when buying the same "what". That is not something I would normally do.

    I would also use the same "spread it around" when it comes to the "what" of my suggested next purchase. I would also "spread it around" when it comes to asset types within the Health Care REITs.

    This has also been a terrible year for multi-family REITs. I do not write about them because their FAD disclosure sucks. The larger the operating component of earnings - the more one needs FAD stats. When I lack meaningful metrics - my metric focused approach adds little value. But - they (the multi-family REITs) are really cheap right now on a yield plus dividend CAGR basis. And they do have the momentum when it comes to dividend CAGRs.
    Dec 4, 2013. 01:01 AM | 9 Likes Like |Link to Comment
  • The First Metric MLP Investors Should Know - Part 2 [View article]
    Allow me to make an assumption that may be incorrect. You may be a part of the audience that thinks I am writing about MLPs. I am not. If I were only writing about MLPs - then my output could easily be more concise. I am attempting to write about due diligence.

    When I was a newbie, I thought that due diligence was "listening to conference calls" and reading investor presentations. My initial impression - due diligence was doing certain activates to build a general impression. I have come to believe that such a process was overly simplistic. It failed to be productive for me.

    I am attempting to show a totally different template of what due diligence is. I am painting an image in new colors. Due diligence is the process of turning qualities and attributes into quantifications and ratios. Due diligence in not a procession of activities. Due diligence is the gathering of information to use in setting valuations. I am showing the details of my imperfect (but evolving) way of doing that. I am trying to provide the glasses that one can use to bring the world into a different focus.

    It is my perception that too many investment writers are making quick judgments without sufficient data to justify those judgments. I would prefer to err on the side of making slow judgments about attributes (not companies) with an abundance of data to justify my conclusions. Most investing articles I read offer few clues to what due diligence is. While my type of due diligence may be atypical (it is fair to say it is overly metric focused) - I am showing the way that I do it - and how I arrive at my conclusions.

    I am not trying to serve an audience that wants "concise". I am not writing about "what" to buy. I am writing about "how" to buy. I want to write more of a text book than a tip sheet. I want to produce content that results in a changing of attitudes that changes the way the reader approaches and does their due diligence.

    There is good news to those wanting more concise info from me. Once I have finished writing about CAGRs and risk - I will move on to some individual MLP updates. They will be shorter - much shorter. The bad news - unless you have read and understood my articles on growth and risk metrics, you will not understand the metrics (and my judgments) I am using in those future articles.

    I really want to produce shorter articles. I am not being paid by the word. The shorter the article, the more articles I can write, the higher my income from SA. I am money motivated.
    Jul 21, 2013. 04:32 PM | 9 Likes Like |Link to Comment
  • The First Metric MLP Investors Should Know [View article]
    Question #15--Would you assume that Clear Bridge MLP fund (CEM) has all this information and the ability to analyze it better than most small investors?

    I just did a comparison of CEM to the Alerian MLP index AMJ using the two year "Basic Chart" tool. The two charts are as close to identical as one will find. CEM is an index tying fund. In the world of mutual funds, "index tying" is very good. We also know from the Dalbar stats that individual investors fall way short of index typing. So given those two stats - I am reluctant to say anything bad about CEM.

    But due to CEM being only an index tying fund, I see no advantage in "copying off their test". PAA, EPD and NGLS have been great stocks in the last year. Congrats on making those selections.

    CAGR awareness has led me to get close to doubling the MLP index in 2011 and 2012 (and I might be liberal in my definition of "close"). I am only 5 percentage points ahead of the index this year. My investment in high CAGR WMB is really hurting me. But it is great to be "really hurting" and still beating the index.

    That personal experience leads to a bias. Not only do I intellectually believe in the advantage that CAGR awareness brings to your investing - I emotionally believe in it - too.

    But if an alternative method of choosing MLPs leads you to the safer and faster distribution growing large caps while also getting some needed diversification - then I would not want to overly discourage you from staying on your current path.
    Jul 16, 2013. 03:30 PM | 9 Likes Like |Link to Comment
  • My Vision Of What The 'Perfect Retirement Portfolios For Dummies' Might Look Like [View article]
    I hope my data will nudge you towards including a rail road and a MLP GP into that list. T and VZ (as well as SO and DUK) are great for security, but poor choices when it comes to "yield + CAGR". I have used triple-net REITs to get the higher security.
    I would have a concern that a portfolio with 2 REITs, 2 tel-comms and 2 utilities has too much security or safety -- and too little growth. I do not have a problem with the components -- but a problem with the potential weighting.
    I do hope you are using multiple CAGR projections -- and making CAGR a major consideration when arriving at a good portfolio.
    Oct 12, 2014. 10:13 AM | 8 Likes Like |Link to Comment
  • Business Development Company Stat Update 9-09-14 [View instapost]
    I have not published anything on BDCs in some time. My current stats strongly indicate that you should be patient with MCC -- as long as your total portfolio has a decent CAGR.

    I will let reader feedback tell me if I need to publish on BDCs again. 10 likes and I publish. Less, and I will keep what I know to myself and several 'net buddies'. Your choice.
    Sep 19, 2014. 12:20 AM | 8 Likes Like |Link to Comment
  • Overcoming Obstacles: A Unique Method For Assessing Risk By MLP [View article]
    Most of the holdings in any retail investors portfolio is there because they were purchased a few years ago. I try to weed out the below average stocks from my portfolio - but I also try to limit portfolio turnover. CMLP is a candidate for sale at the right price. If you have read all my articles, you know I have never suggested it as a buy.

    I do not own NGLS because I have shares in its GP. It is my third largest MLP related holding.

    I wanted to get the grunt work of stating the key metrics and the rules of investing that I use before I started writing articles on individual stocks. Article headlines like "A unique method for assessing risk" will fail to generate readership. But I felt a responsibility to post these kind of articles before I "go tabloid" with headlines that generate higher readership.

    I have the expectation that when I begin the write articles with headlines like "Why EPD is a must-own MLP" - you will see a pick-up in the volume of postings in comment section. And I will see a pick up in page views and SA income.
    Aug 19, 2013. 08:48 PM | 8 Likes Like |Link to Comment
  • Top 10 BDC Issues For 2015: Part 1 [View article]
    I have the impression or suspicion that the volunteers for your survey may be insufficiently briefed on potential losses on energy related loans in the portfolios of several BDCs. (But I do give you credit for asking the question.) This topic was not even on the radar in the last series of conference calls. The only ones who know the potential problems are those who actually read the 10-Ks and 10-Qs. I would suspect that companies with balance sheets and credit metrics that result in them being charged 13% on their loans would be the one's most vulnerable in a down turn. And this has the potential to be a deep and lasting downturn.

    I also want to thank you for polling your audience. I want to know "what the rest of us" are thinking. Most of you guys are hesitant to participate because you only have a fuzzy idea of what is going on. Let me share a secret: ALL OF US only have a fuzzy idea of what is going on.
    Dec 17, 2014. 12:22 PM | 7 Likes Like |Link to Comment
  • Retirement Portfolio For Dummies - The Health Care REIT Components [View article]
    This article had the appearance of being 'long enough' without the inclusion of the Q3-14 earnings release summaries that I do. I have put that information into a Seeking Alpha InstaBlog message that I posted this morning. One can click on my icon to find a link to my InstaBlog.
    Dec 10, 2014. 09:10 AM | 7 Likes Like |Link to Comment
  • Is It A Good Time To Buy MLPs? [View article]
    This was not an article on ticker "MLPS" (UBS E-TRACS 1x Shrt Alerian MLP Infr ETN). It was an article on midstream Master Limited Partnerships of MLPs.
    Jul 5, 2014. 08:17 AM | 7 Likes Like |Link to Comment
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