Value investors like to buy at a discount. They want to buy a stock for less than they perceive it to be worth. Value investors buy more when the stock goes down. It’s a better deal. The value trap is an investment in a company that gets cheaper not because of irrational behavior of the investing public but because the business fundamentals are deteriorating. Or worse yet the investor is being duped by a financial fraud. That’s tantamount to what Barron’s accused Kinder Morgan of over the weekend. They accused them of aggressive accounting designed to boost distributable cash flow and dividends. If true, that’s not too far off from fraud.
Normally insiders involved in nefarious behavior are selling stock as fast as they can. Richard Kinder to my knowledge has never sold a single share even when he brought the company private and back public again. He doesn’t even draw a salary. And instead of selling he has bought millions and millions of dollars worth of his stock back in his personal account. That immediately begets a question. Where does he get the money? That’s a simple one to answer. His approximate 233 million shares of KMI pays him and shareholders hundreds of millions of dollars in low tax rate dividend income. MLP’s are smart tax efficient structures.
If Kinder Morgan is a fraud, it’s really an unusual one. I’ve been fooled twice before. Once with Chesapeake when Aubrey McClendon was margining his stock to keep on buying it and help Goldman sell more of it by his vote of confidence. The other time was with Dennis Kozlowski of Tyco when he was buying stock with money that Tyco loaned him with no requirement to repay. For now there is no evidence to believe that Kinder is doing anything untoward other than paying shareholders a lot of money.