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Linn Energy, LLC (LINE) Message Board

  • jackhiller@ymail.com jackhiller Dec 10, 2011 8:14 PM Flag

    LLC, Linn and Vanguard are now superior partnership investments

    as compared to MLPs with 25% and higher IDRs that have kicked in.

    The IDR has been well established by discussions on this mb as a tax the GP levies on its management service that takes cash flow away from the business, away from potential plow back for growth, and away from funds otherwise available for distribution to the common LP unit. It has been wisely placed into perspective with management fees taxed by mutual funds, demonstrating just how outrageous the IDR taking is.

    Linn and Vanguard, by structuring as LLCs, intentionally rejected what amounts to an unethical IDR taking. Vanguard has made two fairly recent presentations that explain the financial disadvantages to the common from the IDR:

    http://ir.vnrllc.com/phoenix.zhtml?c=211847&p=irol-presentations Select from the presentations menu: Incentive Distribution Rights Panel and What Investors should know about MLPs

    Furthermore, the license written into the GP MLP to make any deals it alone chooses (no vote from the common), particularly as deals are non-arms length drop downs from its sponsor with a conflict of interest (COI) regarding the Common LPs financial interests, can only disadvantage the common interest. In contrast, the LLCs are free to buy properties making the best deals possible from the open market -- without COI, double dealing.

    The LLC managements, by acquiring the very same units as retail unit purchasers buy, share a common interest in company success. Unlike the MLP with the GP, the interests of the LLC management and common unit holder are joined, whereas in the MLP the interests are in direct conflict.

    MLP salesman who do not acknowledge the IDR disadvantage and the troublesome COI created by MLPs are proven thereby to be unethical and not to be trusted. The MLPs in business now have generally had a successful run as the energy buysiness lifted all boats, but the IDRs are now activated or rising, thus inhibiting future growth and distribution increases. When the energy business cycle turns negative, as it always does as inhernetly cyclical, the COI will enable the GP to help itsel and its sponsor with bad deals for the common.

    As with all stock market analyses, they need to be forward looking, regardless of past stock success, by considering changes in the business climate and management terms. The IDR creates a highly negative feature for the future of mature MLPs and the COI creates a high business risk for the common.

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    • Just remember, for every dollar over 97, LINE leaves it on the table.

    • hey norris looking smart at the moment , looks like obama got what obama wonted higher oil , every bodies for higher oil , happy new year buddy .ZACK

    • jackhiller@ymail.com jackhiller Jan 3, 2012 12:15 PM Flag

      Norriss, A Brilliant summary of any foolish trader who boasts about yesterday's success as signal for today's investing:

      " That is reason and logic not prideful delusion. "

      Just too much ego and not enough reasoning.

    • "Your quest for an abstract purity in your investments dooms you to perpetual underperformance. Sorry but you are a loser."

      Even if this empty boast is true, sooner or later the laws of probability will catch up to you just like a gambler in Vegas. The sad part is you are so willfully ignorant you do not realize it is completely irrelevant and informed investors know it.

      Purity has nothing to do with following strategies and risk management Completely support by empirical research. That is reason and logic not prideful delusion.

    • Hey Zack,
      I think you do have a winner there.
      Right now I am forced to diversify away from energy due to success. ;-). I was hoping we would get a swoon to pick up stuff like MMM, PPG, HON and the bigger rails. I should spend my time more efficiently.

    • Illustration...look at some of the top MLP performers of 2011: TLLP, SXL, OILT, GMLP.
      What do they have in common? Strong GPs.

      Your quest for an abstract purity in your investments dooms you to perpetual underperformance. Sorry but you are a loser.

      I have made >$1m profit (distributions plus price increase) purely on MLPs over the last 3 years investing according to my principals. No amount of stupid theorizing on your part is going to make me conclude it was a bad thing. Winning is what counts in investing and I am a winner and you are a loser.

    • “ This is precisely why EPD and other MLPs have been successful. They had a strong GP while they were growing and then when they reached the point where the IDRs outweigh the benefit of the strong parent, they buy out the GP. That is part of my rationale in buying new MLPs with strong parents while they are still in the bottom IDR tier. And it has worked out very well for me.”
      No EPD did this in the interest of common owners before the market recognized the economic value of the GP and IDR interests.
      It is too late for others like KMP as the value and premium is now recognized and reflected in the price. BUying out the GP interest does not lower the cost of capital to common owners unless it is purchased at a discount to economic value. Otherwise it simply shows up as dilution to common owners.

      Do you ever settle down and read the analysts reports? Ever?

    • So you claim. Check back in 25 or 30 years. Over that period of time the probability of your claims being honest are far less than 1%.

    • And you unknowingly made my point by referring to EPD.

      EPD has been around since 1998 or so and up until less than a year ago they had a strong GP. That is how EPD got into a strong enough position to be able to buy out its parent.

      This is exactly the optimal MLP model. A strong GP during the growth years of the MLP with a buyout of the GP by the MLP once it reaches a level of financial strength where the GP is no longer needed.

      This is precisely why EPD and other MLPs have been successful. They had a strong GP while they were growing and then when they reached the point where the IDRs outweigh the benefit of the strong parent, they buy out the GP. That is part of my rationale in buying new MLPs with strong parents while they are still in the bottom IDR tier. And it has worked out very well for me.

      Thanks for proving my point.

      As for KMP, it has been one of the absolute most successful MLPs over a long period. Try arguing that long-term investor in KMP has not been handsomely rewarded is pretty hard.

    • MLPs began with 2% management interests and subordinated interests.
      As retail brokers found they could continue to sell MLPs with 15% then 25% then 50% IRDs to unsophisticated investors, they did. Just as they sell high cost closed end funds and high cost ETF and ETNs. It happens and buyer must be aware.
      MLPs and LLC are capital structures and not asset classes. They are limited to natural resources as a matter of law. Due to all the insider special ‘incentives’ they are nothing like corporations operating in the same industry and therefore require MORE fundamental analysis.
      Unlike informed investors that wait for discount to net asset value to reach historically wide discounts which exceed the cost of high fees, you claim it is all good and recommend less sophisticated investors charge in.
      As I said, bay like a mooncalf in public If you wish. I really do feel for the people whom come in and ‘support’ you, if they are real people. Just destroying their credibility in public to informed investors.

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