to accomplish INVESTING with Gary and generating substantial income at the same time.
Bottom Line: I have given away all assets except for my Roth IRA, where all income generated is tax free. Within the Roth I only own two securities: one half in MHR-PE and one half in GRH-PC. This duo generate as of last night's close a MONTHLY return of 10.12% and the potential for substantial capital gains.
Strategy Going Forward: Since the MHR-PE is convertible into 2.9411 shares of MHR common stock, there is substantial opportunity to generate capital appreciation WHEN the common exceeds the "strike" price of $8.50. This preferred is not callable until November 2nd, 2015 and even then can only be called when the common stock exceeds $10.96 for 20 of 30 days in any month AFTER the call date. Let's assume this happens but the company has further upside potential to its evenual acquisition. I will convert the preferred to common and hold until the acquisition. The 13% monthly income from the GRH-PC will be more than adequate to fund my retirement in spite of the common I would then hold in MHR paying no cash dividends. What if the GRH-PC is called itself? It could be called on June 30th, 2015 BUT IMO will not be. Why? Because the cost of capital at Green Hunter will NEVER be less than the coupon of 10%, making it truly a PERPETUAL preferred. Since Gary owns nearly 50% of the equity in GRH, he is loathe to sell any substantial amount below $2.00 and thereafter will always keep leverage as aggressive as possible to benefit the common shareholder.
KISS (Keep It Simple Stupid)
My T-shirts, which I wear every day, express the motto of the US Army Special Forces: Who Dares Wins on the front, with the Latin: De Oppresso Libre, on the back. I'm training my grandchildren to accept "risk", which is a very loosely-used word.
One of the best and most successful investors of the early 20th century was Bernard Baruch, who coined the expression: "Put all your eggs in one basket and watch the basket carefully". That I have done for 50 years myself with great success. So what is it in GRH that convinces me, in spite of the Josh Young's being absolutely correct in their disdain for the company, that the Preferred "C" is "manageable risk"? Simply that Gary owns 16 million shares or 48%+/- of the company and would NEVER allow the company to fail. I have studied his style, of ALWAYS using extreme leverage, for the better part of a year. That fact, coupled with his stellar reputation and huge ego, makes me convinced that the preferred is perfectly "safe". Focus on the big picture and the brilliance of both MHR and GRH being in the absolute SWEET SPOT of ALL the shale plays in the US----the Marcellus/Utica in southeastern Ohio! THE PRODUCTION FIGURES FROM THE FARLEY WELL IMO WILL BE MIND BOGGLING WHEN REPORTED ON NOVEMBER 8TH WHEN THIRD QUARTER RESULTS ARE ANNOUNCED!