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PINE STREET JOURNAL

Poor Richard's Financial Strategies
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Last updated 1st, January 2016

Disclaimer:  The statements on this site are only personal opinions.  These opinions are not investment advice.  You should not make financial decisions based on these opinions without doing your own research or consulting with a professional.
 
 
Evaluation on 1st, January 2015

Closed Second half of my position in KMI at a
$14.44.   Loss on total MKI investment was 27.9% which accounted for about 2.7% drop in the entire portfolio.  Classic case of catching a falling knife.  Total shares bought at an average cost of $21.18 and sold at an average price of $15.28.
 
Evaluation on 16th, December 2015

Closed out half of my position in KMI at a price of $16.11.  I'll update the current cost basis and image in the coming days. 

Evaluation on 10th, December 2015

The Company recently made a complete turn around in their stand on the safety of the dividend.  It seems that they, as well as I, have been in denial about the realities of the falling oil prices and how that effects their ability to raise capital not only for expansion but even to fund the ongoing business operations.  As you can see from the current cost basis, this has proven to be a very unprofitable investment for the DIY portfolio so far.  No action taken yet since the news came out about the 74% drop in dividend payout.
 
 
Average Cost Basis Experiment:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Cost Basis = $21.18 (Dec. 5, 2015)
 
 
Evaluation on 13th, November 2015
 
As stated earlier, I like KMI but believe that it is likely to drop more in the current environment.  Since my Nov. 6th purchase it has dropped over 9%.  Rather than try to guess the bottom in this type of situation, I will begin to slowly build a position.  I start a little early taking small increments because I don't know when the bottom is and, that being the case, my goal is to get a decent price on an average cost basis.  Also by moving in slowly, if I m wrong about a stock, I won't take a bath by jumping all in at once.  So why do I start buying early?  Why don't I wait until it drops more which I expect it may do?  My view is that in the long term the company and stock will do well, and I have often seen that things are gloomiest at the bottom and that's when the best prices are available.  Unfortunately, things are also gloomiest just before a stock perminently tanks.  So which case is this?  For now, I believe KMI is a solid company in the long run (maybe 5 years out).  I don't think there is any hurry to get in though. So I will take my time building a position.  Above I will track my cost basis, and over time we will see if it was a good or bad investment.
 
Initial purchase made on 6th , November 2015 for 2.5% of portfolio
 
Evaluation on 6th , November 2015

I strongly believe that Kinder could still go down a bit from here, maybe even 20% or more as suggested by a Barron's article a few days back.  A 20% drop would put KMI at uabout $20, if that were to happen, the current dividend if maintained would be over 9%.  Even with no growth in the dividend that is appealing.   At today's price of about $25.50 the same dividend offers a 6% yield.  Which is also decent.  So for now I will take small bites on price weakness and enjoy the dividend.  My average purchase price will be good over the next month or so unless for some unforseen reason product stops flowing through the pipelines.  Although not impossible that does not seem likely.
 
I think the stock price could also be hit by the continued weakness in oil prices even though to some degree the revenue stream is insulated from oil prices directly.  The agressive plans for dividend growth in my opinion also can be impacted by commodity prices, and is demonstrated by KMI reduction of their goal from 10% to between 6% and 10% out to 2020.  I like the financing plans recently annouced for convertable preferred shares.  I feel there is still much stability in the dividend but that the growth of the dividend is in question.   See my earlier articles for views on KMI Debt
 
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