RE:RE:RE:RE:RE:RE:CorrectionYesterday, I significantly reduced my holdings of ENS.
Was this a good move?
Time will tell.
I reluctantly made the sells because I don't necessarily think that ENS is a bad investment. The reason stems from past experience and a discipline I learned many years ago which has paid off more times than not. When I can't understand what is going on and feel that management is not acting in the best interests of the shareholders I get out. I may come back in once I get things figured out. In the past, as I said above, this has paid off more than not and when it doesn't it is not a total loss since the money is used elsewhere.
So what am I worried about?
You say you like ENB and ENS is well above the threshold for contuing to pay its dividend, so what gives?
1....the discount continues to grow and has since Middlefield announced the ATM which provides an enormous amount of room for them to sell ENS shares in the open market.
2...there is a very good chance that with the rise in the SP of ENB over the past while that the covered call strategy of Middlefield, instead of paying off actually cost money since the odds are that they were on the wrong side of the bet or the cost of options mitigation strategies was large/significant. I don't know if this is the case or not but the tea leaves suggest that that is probably the case. Either way the uncertainty lowers the risk adjusted return.
3...as the discount has fallen, it would have actually been better to have invested in ENB straight away as opposed to using ENS in terms of total return.
From Points 1 and 2 - if Middlefield is using the ATM (and we won't really find out if they are and if so for many months from now) to cover their losses and the shortfall between dividend income from ENB and paying out their own dividends on the Commons and the Prefs then they are compounding their own problem because they now have even more shares that they have to pay dividends on and so the gap between income and payouts grows resulting in the need to issue even more shares. Don't want to be dramatic here, but in the Business this often referred to as a death spiral. To me this is a real fear/concern which raises the risk premnium. As I have said many times before, my objective is get the best risk adjusted return on my money, so it made sense to significantly reduce my holdings and move on.