Sold: Aspen (ASPN) ... big mistake...important note about dividends

This might be one of the most important things you will probably learn from this blog and I suggest you read this post even if you have no interest in my investments (especially if you are into special situation investing and may deal with dividends that are 25% or more of the security's value.) It comes from a mistake I made.

Yesterday I was wondering why Aspen (ASPN) didn't gap down after the dividend recordholder date had surpassed and I found out the hard way, after unloading my stake at a loss.

Thanks to a post at Greenbackd by reader Wes (refer to comments at the bottom) for clarifying the situation. Aspen also released a press release late in the afternoon clarifying the confusion. Essentially, the ex-div date follows a different methodology if the company is paying out more than 25% or more of the security's value. Surprising to me, the ex-div date is actually well after the recordholder date in such cases (recall how ex-div is usually 2 or more days before the recordholder date for regular dividends.) In fact, the ex-div date is after the payable date too.

You can read the FINRA document detailing ex-div dates here. Let me also quote Aspen's press release:

Aspen Exploration Corporation (OTC.BB:ASPN - News) viewed what appeared to be unusual market activity yesterday and today in light of its previous announcement of November 3, 2009. That announcement advised the public that a cash dividend of $0.73 per share will be payable to stockholders of record on November 16, 2009, with the dividend being paid on or about December 2, 2009. Notwithstanding the Board's declaration of a record date, Aspen has been advised by the Financial Industry Regulatory Authority (FINRA) of the application of Nasdaq Rule 11140(b)(2) which states: "In respect to cash dividends or distributions, stock dividends and/or splits, and the distribution of warrants, which are 25% or greater of the value of the subject security, the ex-dividend date shall be the first business day following the payable date." Persons needing further information or interpretation should consult with their broker-dealer or legal advisors.

Unfortunately I never knew this until today, and ended up selling my shares at a loss.

I wish I had run across the information earlier but, as is generally the case with investing—or anything else in life for that matter—one is always tasked with making a decision really quickly or waiting and possibly missing the opportunity. I was thinking all this morning, as well as yesterday night, whether I should sell or wait. I picked the wrong choice. I didn't want to wait (wasn't comfortable with what management might do with the remaining money) so I made the decision to sell before the information became available.

I have historically been too patient but, alas, this time, I was too aggressive.

This example is also a good case study for concentrated investors. Although it's a moderately concentrated bet for me (approximately 15% of portfolio), it wasn't as big as it may have been. When I was initially buying Aspen, I would have purchased a bit more (although not as much as in other cases because I didn't know what management was going to do with the leftover money.) If I had made a bigger bet, the losses would obviously have been much bigger.

One of the great things about concentrated investing is that it gives flexibility with sizing. If you look at two of the risk arbitrage deals in the last year, I made a huge bet on Puget Sound Energy and a moderate bet on Bell Canada Enterprises. BCE was a failure while Puget Sound was a success. If you diversify heavily or equally across investments, you don't get this power—the ability to heavily overload certain investments if you are confident. Like all concentrated investors, I think I need to improve upon the sizing of positions. Anyway, I'm just mentioning this point because I am always puzzled by the amount I should invest, especially for special situations.


In my post yesterday, I said this has been a learning experience. Well, I never quite expected to learn about dividends and end up losing money along the way :( But one thing is certain: I now know how large dividends work in American markets and I hope you learned about them too.


Oh one last thing... I'm not sure if I should re-buy Aspen, hopefully at a lower price. The original investment thesis hasn't changed ;) That would be weird if I purchased it back...


Sale Price: $0.92 (approx)
Return: -4.9%