Serious question to someone who is long WLL, and thinking about trust investing, but the whole giving back my principal investment as part of the dividend makes no sense to me? Guess I need to do some homework on these investments and the discount and tax..
Assuming you are investing (not trading), it makes sense if you estimate that they will return much more than your principal investment. Clearly, if it just returns your principal and no more then it is not a good investment. Thus purchase price is key.
Why not trading US Royal Trust or MLP! Trading is nothing more than anticipating volatility. The volatility is, by enlarge, the news digested by the traders. Some like it raw and some liked it cold. In both cases units move up or down, some traders have nerves and buy others like greener pasture and sale. Naturally the distribution becomes the arbiter of possible profits.
This question has been asked, you may be the one that has asked this question. The wording is the same.
Investing in a US Royal Trust makes lots of sense, if you understand what represent the unit. When you buy the unit you buy a portion of the oil or NG in the reservoir. It is true that as the reserve is sold the amount of that the unit represents is less and less. On the other hand the value of these units will change with the market value of the oil or NG. Over the life of the US Royal Trust the value of the oil or NG will increase. The trader must forecast the price of the units versus the distribution of the trust, you must understand that the distribution is the net revenue of the sale of the oil or Ng divided by the outstanding number of units. As long as the unit price decrease less than the distribution, you make money. There is a point where you have to move on to a different US Royal Trust. The gage I use is the Tbill 10 year yield. 7% profit is good, 10% is better and 15% is outstanding. Comparing risk with profit, US Royal Trust are, by enlarge, a very good deal. I call this a no brainer! LOL