Charles Lewis Sizemore, CFA

About the Author Charles Lewis Sizemore, CFA

Charles Lewis Sizemore, CFA is the founder and principal of Sizemore Capital Management LLC, a registered investment advisor. Charles has been a repeat guest on CNBC, Bloomberg TV and Fox Business News, and has been quoted in Barron’s Magazine, The Wall Street Journal and The Washington Post. He is a contributor to Forbes Moneybuilder, and has been featured in numerous publications and well-reputed financial websites, including MarketWatch, SmarterAnalyst, TheStreet.com, InvestorPlace, GuruFocus, MSN Money, and Seeking Alpha. He is also the co-author, along with Douglas C. Robinson, of Boom or Bust: Understanding and Profiting from a Changing Consumer Economy (iUniverse, 2008). Charles holds a master’s degree in Finance and Accounting from the London School of Economics in the United Kingdom and a Bachelor of Business Administration in Finance with an International Emphasis from Texas Christian University in Fort Worth, Texas, where he graduated Magna Cum Laude and as a Phi Beta Kappa scholar. He also maintains the Chartered Financial Analyst (CFA) designation in good standing.

Scared After The MLP Selloff? The Insiders Aren’t


It’s been a bare-knuckle beating in the MLP space.  The JPMorgan Alerian MLP ETN (AMJ), a popular proxy for the sector, is down about 15% in less than a month.  And that is after bouncing off of its deep intraday lows.  AMJ is now in negative territory for the year before taking distributions into account.  Many individual MLPs are down well in excess of 20% over the same period.

What gives?

Corrections don’t necessarily have to have a reason.  But in today’s case, a sharp selloff in the price of crude oil has led investors to dump virtually all energy-related assets.

Before you join them, let me share a little detail with you.  Kelcy Warren, CEO and cofounder of Energy Transfer Equity (ETE), just bought 1,178,567 shares of his own company this week for an estimated $60.5 million.  This follows his purchase of 33,000 shares last month for an estimated $2.0 million.

Warren is a wealthy man, of course.  Forbes ranks him as the 81st richest person in America with a net worth of over $6 billion.  But $62.5 million isn’t chump change, even for a billionaire like Kelcy Warren.

Company insiders can sell their stock for any number of reasons.  Perhaps they are looking to diversify…or buy a seaside home worthy of a billionaire.  It’s hard to draw serious conclusions from the occasional spate of insider selling.

Insider buying, however, is an entirely different story.  There is only one reason why an insider would aggressively buy their own stock: They consider it underpriced and highly likely to appreciate.

You and I are not insiders.  We do our research, and we consider ourselves to be better informed than the unwashed investing masses.  But we’re not privy to the inner workings of a company, and we lack the information and expertise that an insider like Kelcy Warren would have.

This doesn’t mean we should blindly follow insider trading moves, of course, but it does mean we should take it under consideration, particularly at times like these when the market is sending us very scary signals.

When I see a stock I own drop by 15%-20% in less than a month, I get scared.  I wonder if the market knows something I don’t, and I consider selling as a matter of prudence.   But when I see insiders buying with both fists, I’m far more willing to ride out the volatility and even use the dip as a buying opportunity.

Returning to the MLP space, does the sudden drop in the price of crude oil justify the moves we’ve seen in the MLP sector?

Absolutely not.  Some MLPs do indeed have sensitivity to the price of oil, but the largest players that dominate the cap-weighted MLP indexes do not.  They are pipeline operators, and their profitability is based on the volume of oil and gas that passes through them, not the price.

So, unless you believe that the price of energy falls to a point that U.S. onshore production becomes uneconomic to produce, it’s difficult to see the sudden drop in oil prices having much of an impact on midstream MLPs.

My advice: Follow Kelcy Warren’s example and use the recent selloff as an opportunity to load up on all of your favorite MLPs.  And I’d start with Warren’s ETE.

Note: One point of clarification ETE, though it is the general partner of ETP, is itself organized as a limited partnership.  This means that ETE is not appropriate for an IRA account.

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