What I’m Selling: Enerplus

I sold my entire position in Enerplus (ERF) yesterday at $20.00. I first bought ERF at $23.00 per share in March of 2012. Unfortunately, about two months later, I was provided the opportunity to double my position at a price of $16.81, meaning that my average price for my ERF shares was $19.91. Only time will tell if I was wrong about betting on natural gas or if my timing was just off. When I bought ERF two years ago, I expected the stock to be much higher than $20.00 by now. However, at one point I was down nearly 50% on my ERF shares! Take a look at the chart:



So the bottom line is that I was wrong about Enerplus. That’s no big deal. If I were never wrong about stocks, I would be a billionaire by now. You don’t need to always be right to be a successful trader. You just need to use a little common sense to minimize the damage when you are wrong. I was wrong about ERF, but I didn’t panic and sell at $15 for a 25% loss or at $12 for a 40% loss. I was patient, I was stoic, and I waited for a better price. The fact that I was wrong about ERF and still managed to sell the stock for what I paid for it means that, not only did I minimize my losses, I completely eliminated them.

But there is another part to the Enerplus story. This trade is an excellent example of the power of a nice dividend. While I essentially broke even on the share price, by holding ERF and collecting dividends for two years, I ended up making about a 9.5% return on my investment overall! Stocks with high dividends may not always be the best stocks. But when I compare two related stocks with potential, I always compare the dividend yields. In fact, I still have a big bet on natural gas (and a large dividend) in my portfolio in Linn Energy (LINE).

I closed the book on my two-year ERF trade yesterday. Not all trades are home runs, but patience, discipline, common sense, and a nice dividend turned this strikeout of a trade into a +9.5% hit!