Almost Unbelievable MLP Selloff

What a way to end the month!  We knew that MLP’s were going to get hit bad today–we just didn’t understand how badly they would be hammered.

We had purged the MLP’s (oil and gas issues) from the portfolio for the final time in September and have resisted further purchases–and we are thankful that we didn’t procrastinate.  We had dumped related issues way back in March (for instance Seadrill–we sold at $33.47–it now trades at $14.66) and if we would not have acted on our energy ‘hunches’ we would be sick right now.  Now if this was a typical sell down where a bounce would come and then a turn higher would follow we may have convinced ourselves that ‘they will come back’.  But this is NOT a typical sell off.  This is the sell off before the distribution cuts which will begin to come in 3-6 months and will spread throughout the sector.  

There are those that attempt to trade up in portfolio yields as prices fall — but we would advise that if you are considering trading up to the 15-20% current yields that are available in MLP’s DON’T.  You should be looking at these issues as potential upcoming bargains, but only a miracle will stop distribution cuts from coming in a couple of quarters–the point is that you should look for bargains, but don’t hang your hat on the huge yields.

We are looking at Vanguard Resources (ticker:VNR) and a couple other upstream MLP’s as possible purchases.  VNR has good hedges and a large portion of production is natural gas.  Is it a ‘bargain’–probably not yet, but one will never know so when we decide to start purchasing we will do it in multiple purchases–cost average in.  It is likely this won’t happen for a month or more.

For a look at the REDDEST page of losses ever check out this MLP page.

November Portfolio Performance

Coming into today the Model was up 11.17% YTD.  Because of a couple oil related issues (preferreds) we gave back a few 1/10th’s today and end the month at plus 10.89%.  While we are satisfied with this (in fact more than satisfied) there were obvious mistakes made–the biggest being the hedge we hold on the S&P 500.  We hold the Proshares Short S&P 500 (ticker:SH) and it has cost us over 1/2% in portfolio performance. As we have mentioned before hedges hardly ever work for the individual investor, yet we continue to make the same stupid mistake.  Our tolerance for this losing position is growing short and we will determine soon if we should dump it.