Saturday, January 29, 2011

Everyday You Aren't Selling You Are Buying

I am often asked if I still own a security that I've opined on. If the answer happens to be "yes", I often find myself issuing a disclaimer such as "but I'm not adding to my position at present". The implication is that it is no longer a bargain, therefore I'm not adding. But, by not selling, I am making the same decision as buying. So, I must continue to like the company at its current valuation. I found it more compelling when it was cheaper, but evidently I would buy it today if I still own it. I find myself going through this circuitous logic regularly.

Two Master Limited Partnerships, DEP and EPD, have prompted my introspection. These two mid-stream oil and gas service partnerships have been stellar performers. Now, selling at all time highs I wonder if they shouldn't be sold. They aren't selling at ridiculous valuations, but they are getting extended, especially the bigger of the two, EPD. DEP's multiples are more reasonable. At today's pricing they will still yield about 5.5%, not all dividend income as some is return of capital. Both are growing, adding assets, and well managed.

Dan Duncan, the founder and force behind both companies died near the end of 2010. He left the companies with a capable cadre of management and his heirs a nice bonus, zero estate tax on his 10-20B estate! I liked him when alive, admire his timing in death, and plan to keep his two companies for the foreseeable future. I'm not selling, so I guess I remain a buyer.

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