Oscar Wilde once said that experience is the name we give to our mistakes. My investment in Sandridge Mississippian Trust II (SDR) has been the greatest experience of my Special Situations portfolio. But in investing, as in life, to be successful you must make the next right decision, rather than foolishly holding to a past commitment that has been proven wrong. So I've decided to sell my shares in this troubled royalty trust and move on to find a good investment. (I've got a good one here.)
Ouch, that hurts
This investment has been painful, mitigated only by the relatively small stake I took and the ongoing stream of distributions. I purchased shortly after the IPO at $22.20 per share. It was all downhill from there.
After Thursday's close, the stock is down to $7.34, or about 67%. The only salve is the cash distributions totaling $4.25. The overall return comes to -48%. Bad work if you can get it.
It's the second year in a row that the trust has recorded a significant downward revision in reserves. Increasingly the trust is relying on selling natural gas and liquids, as opposed to oil, as previously indicated in the prospectus. That is lowering royalties, which hurts cash distributions over time.
With little reason to expect things to change now, I'm selling Sandridge Mississippian Trust II and will move the proceeds into other stocks that have a good shot at outperformance.