Monday, January 5, 2009

the investment process/links to further information on canadian energy or royalty trusts

I have been asked about some additional links on the canadian energy trusts.  Morningstar has available for its subscribers reports on HTE, PWE, PVX, and ERF.  I would consult those reports which are useful prior to considering any purchase.  

There was a recent article in the WSJ about natural gas prices. WSJ.comMost of these trusts are weighted more in natural gas than oil.  While many think demand for natural gas is mostly influenced by the weather in winter, which is certainly one demand factor, price is probably more dependent on demand from industrial users.
A number of heavy industrial users of natural gas are shutting down plants due to the economic slowdown. This is known, but it is unknown and ultimately unknowable how long the recession will continue. I can only make predictions and estimates, then make a decision on when and how much to allocate to energy stocks which have already undergone a serious correction.  I can say with a measure of certainty that a return of industrial demand will be a prerequisite to any sustained upward move in natural gas prices.  

Some information from other sites including seeking alpha on canadian trusts  is linked here, and this would be just a sampling of articles read over the past month or two:

No order was filled today.  I am in no hurry to sell a bond position.  I will be a happy camper just to clip coupons but will sometimes pare a position on big up moves which I saw today in several TCs.   

After seeing how much Chrysler's sales fell last monthMarketWatch, some thought has to be given by policy makers why any money is being spent to prop it up, particularly when it is owned by a private equity firm.  But this is only a concern that I have as a taxpayer.  I do not have a position in any of their bonds, or any auto supplier, or in GM or Ford.  I do still own 100 FCZ after just selling 100, bought in a moment of temporary insanity and it has at least gone up nearly 100% over the past few days.  Many of the firms that have received substantial government assistance deserved to fail, including AIG and Citigroup.  The American auto companies and the UAW have never faced the reality of the competitive market for autos in the U.S. with the foreign owned companies taking a large share of the market over the past decade.  It is as if the companies and the UAW have yet to come to grips that we are no longer in the 50s, 60s or 70s where large distribution networks, multiple models and brands, enormous capacity, job banks and assorted other Union demands which would break the back of highly profitable companies,  still rule the roost.  Bob Corker, our Tennessee senator, correctly identified the problems but still there is not enough room left in the market for a struggling stand alone company like Chrysler when GM is already a basket case and the Japanese and Koreans are becoming stronger by the day with more rational business models, wage costs and benefits. 

I have mentioned throughout these posts my belief that every individual needs to read a prospectus first before even considering buying a TC, preferred stock and other bond like investments.  In this posts, I attempt to identify some of the issues that I address when I read the prospectus.  This might include for example such issues as cumulative or non-cumulative, maturity date, coupon, deferral rights, call dates, tax issues, and other considerations, all of which have to be addressed before anyone reaches first base.  Then you have to do a complete analysis of the company's credit profile.  Then, you calculate the yield based on the current price and potential profit by capturing the spread between cost and par by purchasing at a discount to par value, weighing all of the various factors before deciding how much to buy, how to buy with a limit order or possibly a GTC limit order well below the existing market, and the exit strategy and where it fits in the individual's overall asset allocation model.  This is what I call a process.  You either take the time to follow the appropriate process or you do not.  That is up to you.  If you do not follow this correct process on every single investment made, you simply increase the likelihood of failure which can still occur on individual selections no matter how much research is done, or how experienced you are at the game (I have over 40 years) , and irrespective of being recognized as just plain brilliant.   This has been mentioned throughout these posts as well as in the following disclaimer.   The prospectus is the first step for these types of issues, certainly not one that can be avoided.  Those who regularly read this post already realize this point which I wish to drive home again.  

After posting this one, I thought that I would add a comment about how I decided to allocate capital to canadian energy stocks.  After researching each company, I made a decision on how much money to allocate to each one.  It does not matter how many shares that I buy but the total amount of dollars.  I have invested in the baby Berkshire shares by buying just five sharesBRK-B: Summary for BERKSHIRE HATH HLD B - Yahoo! Finance 
(since sold and no longer owned, considering initiating a new position), and I  might be willing to nibble on Google by buying five or ten for example.  This does not embarrass me because it is always about the amount of capital that I am willing to risk in a single security under consideration. After making a macro and micro call for the canadian trusts, my  final step is too ask myself how confident am I in the really important variables such as the price of natural gas.  If I had a high confidence level that the price had found a floor and would start a new bull market,  which I do not have, and I did not have to contend with the 2011 change in taxation, then I would have increased my personal allocation to this sub-sector in energy by about $10,000.   The relatively small allocation of funds indicates a level of discomfort about the major variables impacting price other than the actual operations of each of these companies. 


  I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. In these posts, I am acting as an unpaid financial journalist and an occasional political commentator.   I am also aggregating financial news stories that I view as important and providing any reader of these posts, assuming there are more than a couple, with links to those articles, sort of a filtered, somewhat intelligent, free search engine.  Any discussion made by me of particular securities  is not a recommendation to buy or to sell.  Trade at your own risk.  Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons.  The sale may before or after the post.  Before buying or selling any stock, even one recommended by a trusted financial advisor,  please research it and make up your own mind which is what I always try to do.  Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news.  In this post, and all others by me, I am merely describing my reasons for purchasing  or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale.  The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile.  Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments.  Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed.  These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities.   All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me. 

No comments:

Post a Comment