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  • Karl Popper And Dividend Growth Investing [View article]
    Popper's Logical Positivism was useful to advocates of the so-called scientific method over all other epistemologies, but it would hardly fly as the basis of an investment philosophy. In the real world, one negative case usually doesn't falsify anything. One bad month for your portfolio doesn't mean you have a bad asset allocation. Likewise, the idea that a heap of positive cases can't prove anything (the problem of the so-called "inductive leap") quickly runs afoul of mathematical statistics, which allows you to quantify the level of certainty that positive cases will continue to occur. The author's title was an alluring hook (good job, Roger), but Popper's ideas are now mostly consigned to the dustbin of history.
    Aug 5, 2013. 01:16 PM | 1 Like Like |Link to Comment
  • When To Hold And When To Fold: Atlantic Power Corp. And Just Energy Group [View article]
    And he recommended Frontier Communications (FTR) right up to their dividend cut, then issued a sell, rather than a hold as in the cases discussed here
    Jul 1, 2013. 11:13 AM | Likes Like |Link to Comment
  • BDC Risk Profiles: Part 10 - Prospect Capital [View article]
    So, why all the sell volume in PSEC over the last two days? I didn't see any news.
    Jun 3, 2013. 11:45 PM | 1 Like Like |Link to Comment
  • Equity/Fixed Income Momentum - June 2013 [View article]
    Jun 3, 2013. 04:08 PM | Likes Like |Link to Comment
  • Equity/Fixed Income Momentum - June 2013 [View article]
    You probably answered this question in an earlier article: trailing one-month returns with or without dividends and interest? I assume without.
    Jun 3, 2013. 02:37 PM | Likes Like |Link to Comment
  • Investing In The Asian Century [View article]
    Lots of PR here, but not much actionable advice.
    May 9, 2013. 04:31 PM | Likes Like |Link to Comment
  • Gold And Markets Married By Fiat: PM Collapse Precedes Markets [View article]
    Thanks for the Burgess ref.
    May 9, 2013. 11:08 AM | 1 Like Like |Link to Comment
  • Gold And Markets Married By Fiat: PM Collapse Precedes Markets [View article]
    Thanks for the reference. I was thinking more about 1984 than Brave New World.
    May 9, 2013. 12:57 AM | Likes Like |Link to Comment
  • Gold And Markets Married By Fiat: PM Collapse Precedes Markets [View article]
    I can't say I liked your quote, "Western oligarchs see China as a model of socio-governance because Communists know how to manage human inventory. It is a sad truth of these times." In fact it scared the hell out of me. "Manage human inventory" = betray the masses. But it may come to that, if it hasn't already.
    May 8, 2013. 08:38 PM | Likes Like |Link to Comment
  • Momentum Trading An ETF Portfolio Via A Programmatic Allocation Model [View article]
    That's great, Paul! Keep the articles coming too.
    Mar 8, 2013. 12:43 PM | 1 Like Like |Link to Comment
  • Momentum Trading An ETF Portfolio Via A Programmatic Allocation Model [View article]
    Do you have CAGR and drawdown data for this backtest?
    Mar 7, 2013. 01:31 PM | Likes Like |Link to Comment
  • Momentum Trading An ETF Portfolio Via A Programmatic Allocation Model [View article]
    This link has a good discussion of how to use ATR to set stops.
    Mar 7, 2013. 01:20 PM | Likes Like |Link to Comment
  • Momentum Trading An ETF Portfolio Via A Programmatic Allocation Model [View article]
    I finally went back and read the earlier article. Are you calculating the 10% stop loss from the previous close or the intraday high?
    Mar 7, 2013. 01:18 PM | Likes Like |Link to Comment
  • Atlantic Power: A Tale Of Misinformation [View article]
    Roger Conrad sent out a long email update on AT today, including an interview with CEO Barry Welch. Here are his conclusions:


    We can't erase the losses we already have in this stock. And, conversely, the worst mindset we can have about this or any losing position is to double down in hopes of making it back.

    Here are my takeaways from this interview, which support my current "hold” rating in this stock.

    First, there's absolutely no question that Atlantic management is going to have a credibility problem for some time.

    This has always been a more complicated company than most. Cutting the dividend so dramatically leaves very little level for comfort. And judging from the massive volume in the stock, a lot of investors can't get out soon enough.

    Encouragingly, one place we haven't seen carnage is in the company's bonds. These in fact have scarcely moved since the fourth-quarter announcement, which is a nice affirmation of the company's odds of staying solvent.

    But it's going to be very tough for Atlantic to raise any equity capital anytime soon without raising some real questions about dilution--that is until it executes on certain benchmarks.

    Here's what I'll be looking for by mid-2013:

    Successful completion of the sale of the Florida plants at the stated price.
    Successful syndication of the Canadian Hills financing.
    At least one new project announcement.
    Successful completion of the Path 15 power line sale.
    Payout ratio in line with guidance.
    In my opinion, Mr. Welch has given us enough reason with these answers--as well as the others given to the general public and analyst community last week--that Atlantic can execute on these goals. And it also appears the company has turned itself into a very hard target. If the power market stays chronically weak, it can still survive.

    More important, I'm still satisfied that management's long-term plans to build a business--though obviously set back recently--still have a potential pathway to success.

    In Canadian Edge over the years we've had the good fortune to hold several companies that have taken heavy blows, including dividend cuts, but have later gone on to produce great wealth for shareholders.

    TransForce Inc (TSX: TFI, OTC: TFIFF) is one that's recently flowered. And fourth-quarter earnings--which we'll detail in the March issue, which will be published on Friday, March 8--point the way to much more ahead.

    We've seen the same thing happen with several Utility Forecaster recommendations as well. CMS Energy Corp (NYSE: CMS) and NV Energy Inc (NYSE: NVE), for example, were one false step from bankruptcy in 2002 but have multiplied investors' money many times since.

    Despite this week's events my view is still that Atlantic is much more likely to follow that route, rather than go down the proverbial rat hole, a la Yellow Media Inc (TSX: Y, OTC: YLWDF).

    But this is fundamentally a much different investment than it was a week ago, and we can't afford to blithely ignore what we now know.

    So here it is. Despite the red ink, my advice on Atlantic Power remains to hold the stock, with the following caveats.

    First, this is not a suitable investment for conservative investors at this time. We didn't know it wasn't before this week. But based on the facts as presented, there are challenges and unknowns here. If you can't take the risk of another 50 percent drop from here, sell this stock.

    Second, I do not recommend investing new money in Atlantic at this time, especially if it's an attempt to average down the price. I truly appreciate management's answers to us in this interview and believe they are sincere. But they're going to have to execute their plan before this stock is again a buy.

    I've heard from many readers over the past week, and I'm fully aware many own or have owned Atlantic stock. But at this point it's just one losing stock in a year where even most of our Canadian Edge Holdings are doing well, and our utilities are hitting new highs.

    The surest way to turn this loss into a full-fledged portfolio disaster is to really load up on it, i.e. build a position that's out of balance to the rest of your portfolio.

    Third, to reflect the changed nature of Atlantic Power--again, based on what we now know--I'm moving the stock to the Aggressive Holdings in Canadian Edge and the Growth Portfolio Aggressive Holdings in Utility Forecaster. This is where I put all of my most aggressive recommendations that are suitable only for those willing to take on the risks. Note that Atlantic Power's Safety Ratings are also down several notches in both CE and UF, again based on the information we now have.

    As I noted above, I've received a great deal of feedback from readers regarding Atlantic Power, many asking why-oh-why didn't we get out before this news broke. I will strive to get back to each and every one of you in the coming weeks, though I hope this bulletin will answer what you want to ask.

    But for now it's important to know that I based decisions for Atlantic the same way I do every stock in our portfolios. That is, I only respond to what we know, not rumor.

    True, using a stop-loss at some point the past couple weeks would have sold you out at a higher price than Atlantic is trading for now. Equally, however, Atlantic isn't the only stock that's been volatile or down-trending in recent months.

    And a clear-headed look at the price action of the past few years shows clearly that most of these downward price breaks were short-lived, hurting only those who were whipsawed out with stops or who sold on momentum.

    Obviously, we continue to try to pick stocks that are performing well as businesses, just so we can avoid a souring situation like this. But the only real way to protect yourself when I'm wrong--and this won't be the last time, I promise you--is to diversify and balance your portfolio.

    In other words, don't let any one holding come to be such a large part of your portfolio that it can do serious damage. This won't ensure you never have a losing position. But no matter what happens to an individual stock you'll still be in good shape.

    Secure in that knowledge, you can afford to be patient and invest based on value--the key to building wealth--rather than trying to anticipate momentum and invariably buying high and selling low as a result.
    Mar 6, 2013. 01:58 PM | 1 Like Like |Link to Comment
  • Atlantic Power: A Tale Of Misinformation [View article]
    Here's what Roger said on March 1 in an article on his website titled "Bonds' Bubble Inflating."

    One company to report thus far has disappointed us. Atlantic Power Corp (TSX: ATP, NYSE: AT) confirmed even worse than bad-case fears aroused by a Bay Street analyst last week when it announced fourth-quarter and full-year 2012 results late Thursday evening, Feb. 28.

    Management slashed the dividend by 65.2 percent, from a monthly rate of CAD0.09583 to CAD0.03333 effective with the March payment that will be made on April 30. Shareholders of record as of Feb. 28 will receive a final payment at the CAD0.09583 monthly rate on March 28.

    The stock, which has tumbled from north of CAD15 on the Toronto Securities Exchange (TSX) and USD15 on the New York Stock Exchange as recently as November 2012 to CAD10.26 and USD9.97, respectively, on Feb. 28, is likely to suffer another steep decline today, March 1, as the market digests this drastic dividend cut as well as what appears to be a subtle but significant strategic shift.

    That’s on top of the slide from north of CAD12 in mid-February that was made worse when analyst Nelson Ng of RBC Capital Markets predicted in a Feb. 19 research note that Atlantic Power would have to cut its dividend by at least 30 percent to preserve cash for acquisitions.

    Atlantic Power’s new payout policy obscures what were solid fourth-quarter and full-year 2012 operating numbers. But the dividend policy shift is without question one of the most disappointing outcomes of an earnings announcement in recent years. Atlantic Power has been a member of the UF Portfolio since September 2005, during which time we’ve experienced ups and downs.

    At the same time, it drives home some hard lessons, among them that it doesn’t pay to load up on any one stock, no matter how high the yield, no matter how solid the underlying business appears. The corollary of this is that a diversified–and balanced–portfolio is the surest way to build wealth for the long term.

    We’ve seen nothing like this from a company that maintained and grew its payout rate before, during and after the Great Financial Crisis as well as through its conversion from income trust to corporation. It did this by consistently adding assets that generated cash flow from contracts with solid counterparties.


    Atlantic Power is clearly entering a period of transition, which got underway with the January 2013 announcement of the sale of three Florida-based gas-fired power plants for net proceeds of approximately USD111 million.

    As Mr. Ng of RBC Capital Markets suggested, Atlantic Power management is preserving cash in the interest of adding assets that will support longer-term growth and dividend sustainability.

    Management noted in its statement announcing results and the new payout policy that it and the board had recently met to discuss “providing shareholders with an attractive total return, with a view to appropriately balance the income and growth components of total return to enhance long-term value.”

    Crucially, management pointed out that “the mix of growth opportunities, and therefore allocation of the Company’s resources, has shifted towards earlier-stage construction and development projects, including some at a greenfield stage.” There is a longer lag time between capital investment, however, and the point at which such earlier stage developments generate cash flow that can in turn be distributed to shareholders.

    Complicating management’s cash flow projections even further is the fact that negotiations with the government of the Canadian province of Ontario over the renewal of Atlantic Power’s Tunis project’s contract have no clear timeline for conclusion. Management described the outcome as “uncertain” and noted that “recent signals are increasingly challenging.”

    The company’s other Ontario projects are also under pressure, with margins shrinking due to lower flows through a TransCanada Corp (TSX: TRP, NYSE: TRP) pipeline.

    The Florida plant sales, the anticipated sale of the Path 15 transmission line in California, lower demand in New York that will impact the re-contracting of the Selkirk project as well as “the impact on cash needs of a greater share of the Company’s growth investments (relative to the mix of investments in the past) requiring cash upfront while cash returns from these investments could lag by 12 to 24 months” have also forced management’s hand.

    The latter factor is the key element in Atlantic Power announcing a new target range for its payout ratio of 65 percent to 75 percent, whereas the 2012 payout ratio was 100 percent, within management’s guidance range of 96 percent to 102 percent.

    There is also the consideration of significant debt maturities in 2014 and 2015.

    Atlantic Power forecast Project Adjusted EBITDA in the range of USD250 million to USD275 million for 2013, up from USD226 million in 2012 due primarily to a full year of contributions from Canadian Hills and Meadow Creek and nine months contribution from Piedmont.

    Management expects 2013 distributable cash of USD85 million to USD100 million, down from USD132 million in 2012 due to the decrease in cash flow from discontinued operations, primarily the Florida Assets, partially offset by a full year of contributions from new projects.

    As previously noted, the new target payout ratio for 2013 is 65 percent to 75 percent, down from 100 percent for 2012. On a pro forma basis, reflecting the lower dividend for a full year and excluding cash from discontinued operations, the actual 2013 payout Ratio is expected to be approximately 100 percent, based on the midpoint of cash flow guidance. Management expects the 2014 payout ratio to be 75 percent to 85 percent.

    Management also announced the adoption of a “shareholder rights plan,” which indicates it too anticipates a sharp decline in the share price that could attract opportunistic potential acquirers.

    As for what were actually solid operating results, management reported that 2012 cash flow from operating activities was USD167.1 million, up from USD55.9 million in 2011. Distributable cash for the year was up to USD131.6 million from USD79 million.

    Management attributed the increases to contributions from the 18 projects acquired as part of the Capital Power Income LP acquisition in November 2011 and improved distributions from several other projects.

    Atlantic Power received USD275 million in cash distributions from projects, which exceeded guidance of USD255 million to USD265 million.

    Of course the major takeaway from the company’s announcement is the new payout policy and the dividend cut effective with the March distribution, which will be made April 30.

    For now, Atlantic Power is a hold.
    Mar 5, 2013. 12:40 PM | Likes Like |Link to Comment