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American Water Works’ (AWK) CEO Susan Story on Q4 2015 Results – Earnings Conference Call Transcript

Operator Good morning and welcome to American Water’s Fourth Quarter and Year End 2015 Earnings Conference Call. As a reminder, this call is being recorded and is also being webcast with an accompanying slide presentation through the company’s Investor Relations website. Following the earnings conference call, an audio archive of the call will be available through March 3, 2016 by dialoging 412-317-0088 for U.S. and international callers. The access code for replay is 10079115. The online archive of the webcast will be available through March 25, 2016 by accessing the Investor Relations page of the company’s website located at www.amwater.com. [Operator Instructions] I would now like to introduce your host for today’s call, Greg Panagos, Vice President of Investor Relations. Mr. Panagos, please go ahead. Gregory Panagos Thank you, Kerry. Good morning, everyone. And thank you for joining us for today’s call. We will keep the call to about an hour. At the end of our prepared remarks, we will open the call up for your questions. During the course of this conference call, in both our prepared remarks and in answer to your questions, we may make forward-looking statements to represent our expectations regarding our future performance or other future events. These statements are predictions based upon our current expectations, estimates and assumptions. However, since these statements deal with future events, they are subject to numerous known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from the results indicated or implied by such statements. Additional information regarding these risks, uncertainties and factors is provided in the earnings release and in our 2015 Form 10-K each as filed with the SEC. I encourage you to read our Form 10-K for a more detailed analysis of our financials and other important information. Also reconciliation tables for non-GAAP financial information discussed on this conference call including adjusted EPS and our O&M efficiency ratio can be found in the appendix of the slide deck for this call which is located at the investor relations page of the company website as well as our earnings release. We will be happy to answer any questions or provide further clarification if needed during our question-and-answer session. All statements in this call related to earnings and earnings per share refer to diluted earnings per share from continuing operations. Before I turn the call over to Susan, I would like to take this opportunity to introduce you all to Melissa Schwarzell. Our new Director of Investor Relations. Melissa has been a member of American Water’s finance team in Lexington, Kentucky since 2009. Her experience includes supporting rate cases, infrastructure filings and other regulatory matters in seven of American Waters regulated states. She has worked on most of the company’s cost components and she has tackled challenging recovery issues. She’s also provided rates related financing – excuse me, financial planning support throughout the American Water footprint. I know you will all find Melissa to be very helpful and a pleasure to work with. And now, I will turn the call over to American Water’s President and CEO, Susan Story. Susan Story Thanks, Greg. Good morning, everyone and thanks for joining us. With me today are Linda Sullivan, our CFO, who will go over the fourth quarter and full year financial results; and Walter Lynch, our COO, who will give key updates on our regulated business. On January, the 1st, Walter assumed additional responsibility for operational and safety best practices across our AWE market-based businesses. So periodically, he will give you an update on those efforts as well. The employees of American Water delivered strong results in 2015 for both the fourth quarter and the full year. We invested significant capital into needed upgrade for our system to provide reliable and safe water and wastewater services. We continued our focus on managing costs and deploying technology so that our services remain affordable for our customers and we treated and delivered water that consistently met and surpassed EPA drinking water standards. This includes the lead and copper rule, which has generated a lot of news recently, due to the crisis in Flint, Michigan. American Water samples for lead on a routine basis and our water systems continue to be incompliance with that rule. We expanded our regulated customer base in 2015 by nearly 42,000 metered customers; about 9,000 customers resulted from organic growth in our existing footprint. 24,000 customers joined our system from acquisitions that closed during the year, and additional 9,000 are from acquisitions, where we have written agreements in place and are just awaiting regulatory approval. We also continue to grow our market-based businesses through new contracts and new customers. As you can see on slide seven, we reported operating revenues of $783 million, a 7% increase above fourth quarter 2014. For the full year, operating revenues were nearly $3.2 billion, an increase of about 5% over 2014. Earnings from continuing operations were $0.55 per share for the fourth quarter, a 5.8% increase above fourth quarter 2014. Annual earnings were $2.64 per share, up 8.6% over 2014 adjusted EPS. The fourth quarter includes a $5 million contribution to the American Water Foundation whose work I will discuss briefly before our Q&A session. Turning now to slide eight; you can see that we delivered on our strategies in both the regulated and market-based businesses in 2015. We made about $1.4 billion in total annual investment, the highest in our company’s history. We invested $1.2 billion in our regulated system, which improved our long-term service reliability and water quality for our customers. We’re able to increase our investment at this level because of the expertise of our hardworking employees and our continuous improvement in both O&M and capital deployment efficiency. We’re proud of our ability to deliver on our growth goals and effectively manage every dollar to deliver excellent customer service while we keep our customer bills affordable. Even more importantly, we know that our customers need to be able to trust that the water we provide is clean and safe. So while consistently meeting and surpassing all EPA requirements in 2015, we continued our focus on further strengthening our critical assets. Let me give you a couple of examples. We upgraded two of our company’s largest water treatment plants, which serve over 300,000 customers in St. Louis County, Missouri. In Champaign, Illinois, we upgraded chemical treatment facilities nearing the end of their useful life with improvements that included replacing gas coring facilities with safer technology. In addition to these regulated system investments in 2015, we also grew our customer base organically and through regulated acquisitions. Our market-based businesses continue to grow as well. In December, our Contract Services Group was awarded a 10-year O&M contract in Camden, New Jersey with revenue of approximately $125 million. Our Military Services Group expanded to 12 bases with a successful 50-year contract bid for Vandenberg Air Force Base with revenue of approximately $300 million. Our Homeowner Services Group expanded to 1.6 million service warranty contracts and we grew our utility partnerships by adding Rialto, California and the Orlando Utilities Commission. As you know, we expanded our business through the acquisition of Keystone Clearwater Solutions. So, in summary, we produced excellent results for the year through our ongoing customer growth, highest annual capital investment in our history, and we continued our O&M and capital efficiency. This continues our progress toward achieving our goal of 7% to 10% EPS growth through 2020. Based on our performance, our board declared a cash dividend of $0.34 per share during the fourth quarter, and we are affirming our 2016 earnings guidance range of $2.75 per share to $2.85 per share. And with that, Walter will now give you his update. Walter Lynch Thanks Susan. Good morning, everyone. As Susan mentioned, our regulated businesses had a strong year all around with historic capital investment, smart and strategic acquisitions and continued O&M efficiency gains while balancing customer bill impacts. As you can see on slide 10, 2015 was a good year for growth. Through acquisitions and organic growth, we added in our pending regulatory approval, nearly 42,000 customers in our regulated businesses. In 2015, we completed 14 acquisitions adding nearly 24,000 customers to our existing footprint. Seven of these transactions closed in the fourth quarter including our purchase of the municipal wastewater system in Fairview Township, Pennsylvania. This newly acquired system provides wastewater service to approximately 4,000 customers including more than 200 businesses in commercial accounts, and it’s a perfect fit and as Pennsylvania American Water already owns the water system. This acquisition provides a long-term wastewater solution and a financial relief for the local community. According to the Township’s board of supervisors because of the sale, Township residential received a 50% reduction in real estate taxes in 2016. The proceeds of this sale will also help payoff approximately $21 million in sewer debt and avoid an anticipated $14 million in additional debt that would have been required to complete planned projects. Again this is a great example of how we can bring solution to municipalities struggling to finance the water and wastewater improvements while improving their service and keeping rates affordable for our customers. At the end of 2015, we have 12 pending acquisition agreements that were signed and waiting for regulatory approval. These acquisitions would add approximately 9,000 customers to our customer base if approved and completed. In 2016, we completed a purchase of four of these acquisitions, one of which was Environmental Disposal Corporation in New Jersey. This investor-owned wastewater utility provides service to more than 5,300 customers as well as bulk wastewater treatment services for several nearby communities. Additionally in December, Pennsylvania American Water signed a memorandum of understanding for the potential acquisition of the wastewater assets of the Scranton authority, which serves approximately 31,000 customers. This MOU commits the parties to negotiate in good faith toward executing a final purchase agreement. On the regulatory front, you can see a snapshot of our current activity on slide 11. Our Illinois and Kentucky subsidiaries fought rate request in the first month of 2016. In both space, we’re seeking to recover a significant amount of needed capital investment, offset by reduced or flat O&M expenses. In Illinois, we requested $40 million in additional revenues based on a projected total of $342 million of capital investment between October 2013, and the end of 2017. Our team in Illinois reduced their O&M expenses by about 3% since the last rate case in 2012, continuing the great work by our employees to keep those affordable for our customers. In Kentucky, we request $13.5 million in additional revenues, primarily driven by $79 million of capital investment while keeping operating expenses flat since 2012. Again, this focus on expenses allows us to make critical infrastructure investment continuing the trend of keeping bills affordable for our customers. In Missouri, our case is moving along to the process, and we expect the decision sometime before mid-year. In West Virginia, we have not yet received the rate order, so it will stay at a high level and base my comments from the press release sent out last night by the West Virginia Public Service Commission. The order provides an increase of $18.17 million in water rates and $151,000 in sewer rates. The Commission recognizes that the company reduced its O&M expenses from its last rate case, and the adjustment to base rate is driven primarily by the increased investment we made to ensure reliable water service for our customers. And consistent with our normal process, West Virginia American water will show a press release, once they’ve had a chance to review the order. Moving to California, on February 1st, we received approval from the California Public Utility Commission to extend our cost of capital filing by one year. This will keep our authorized return on equity at 9.99% through 2017 for our California subsidiary. Meanwhile, despite some rainfall from the effects of El Niño, the drought continues in California. Our team continues to demonstrate leadership in dealing with the drought and we’re certainly proud of all other efforts to help our customers during this time. We also continue to make progress on the Monterey Peninsula Water Supply Project. Our test plant well is operational and the results are positive. The project is undergoing environmental and regulatory review by the California Public Utility Commission, and this review is scheduled to be completed by the end of the year. Moving to slide 12; we ended the year with a 35.9% O&M efficiency ratio and we’re on track to meet our 34% target by 2020. I know, we’ve talked a lot about this, most recently, at our Investor Day in December, but I think it’s worth repeating, we’ve really made tremendous progress here. As you can see, the progress is evident by the amount of revenue requirement attributed to capital expenditures versus operating expenses. For the general rate cases, we filed last year, we reduced our O&M expenses by $10 million or 17%. This reduction allowed us to invest approximately $65 million into needed infrastructure upgrades without affecting our customers’ bills. Our employees are doing a great job in this area through leveraging best practices, improved efficiencies, technology and innovation, and this produces results for our customers as well as our company. So, with that, I’ll turn the call over to Linda for more detail on our financial performance. Linda Sullivan Thank you, Walter, and good morning, everyone. In the fourth quarter and for the full year of 2015, American Water continued to deliver strong financial results. As shown on slide 14, earnings per share from continuing operations for the fourth quarter was $0.55, up $0.03 or 5.8% over the same period last year. This slide shows the contribution by business line to our quarterly and annual results. Let me walk through the numbers then I’ll discuss the drivers of the key variances on the next few pages. For the quarter, the regulated businesses contributed $0.54 up $0.01, the market-based businesses contributed $0.06 flat to the fourth quarter of last year and the parent which is primarily interest expense on parent debt was $0.02 better than the fourth quarter of last year. For the full year 2015, earnings per share from continuing operations was $2.64 per share, an increase of $0.21 or 8.6% increase compared to adjusted 2014. The contribution from our regulated businesses was $2.63 per share, up $0.18 or 7.3% over adjusted 2014. The market-based businesses contribution was $0.24, up $0.02 or about 9% over last year. And the parent improved $0.01 per share. These annual increases are consistent with our long-term growth triangle. Turning to slide 15, let me walk through the components of our quarter-over-quarter increase in earnings per share. The primary driver was higher regulated revenue of $0.09 per share from infrastructure surcharges and other rate increases to support our regulated system investments. This was partially offset by higher O&M expense of $0.03 mainly from the timing of maintenance-related work as well as higher claims and pension-related costs. Depreciation, taxes and other increased $0.05 per share driven mainly by our investment growth. The improvement at the parent of $0.02 per share was mainly due to lower taxes from state tax proportionate benefit, partially offset by the $5 million contribution to the American Water Foundation that Susan mentioned. Also, please note that the market-based businesses were flat for the quarter as higher growth in our Military and Homeowner Services Groups was offset by a 2014 tax benefit. Turning to slide 16, let me walk through to the elements of our $0.21 increase in year-over-year adjusted earnings per share from continuing operations. The regulated businesses benefited from higher revenue of $0.18 per share from authorized rate increases to support investment growth as well as increases from acquisitions and organic growth. In addition, there was a $0.05 increase due to mild weather during 2014 and an improvement in O&M costs of $0.02 per share offsetting these improvements, with higher depreciation and taxes of $0.07 per share, driven by our investment growth. Overall, the regulated businesses increased $0.18 year-over-year. The market-based businesses were up $0.02, mainly due to additional construction projects under our military contracts and the addition of Hill Air Force Base and the Picatinny Arsenal in 2014, as well as geographic expansion and Homeowner Services. Parent and other was $0.01 better than 2014, due mainly the lower taxes from state tax proportionate benefits, partially offset by the Foundation donation. Now, let me cover the regulatory highlights on slide 17. As Walter mentioned, we should receive the rate order from the West Virginia rate case soon. And as such, we currently have four general rate cases in process: Missouri, Virginia, Illinois, and Kentucky for a combined annualized rate request of $87.4 million. For rates effective from January 1, 2015 through today and including the $18.3 million for West Virginia we received a total of $98.6 million in additional annualized revenue from general rate cases and infrastructure charges. We encourage you to review the footnotes in the appendix of this slide deck for more information. Slide 18 highlights our improved financial performance across the board. During the fourth quarter of 2015, we made total investments of $386 million primarily for regulated system investments. For the year, we invested a total of $1.4 billion. This includes $1.2 billion for regulated system investments, $64 million for regulated acquisitions and $133 million for the acquisition of Keystone. Excluding the Keystone acquisition, capital investment increased about 27% from 2014. Going forward, we expect to invest $6.4 billion over the next five years of which about $5.5 billion will be to improve water and wastewater systems for our customers, $600 million for regulated acquisitions and $280 million for strategic capital. For the full year, cash flow from operations increased $82 million or 7% to about $1.2 billion mainly due to the increase in net income and our adjusted return on equity for the past 12 months was 9.43%, an increase of 57 basis points compared to last year from continued execution of our strategies. We also announced in the fourth quarter of 2015, a $0.34 common stock cash dividend payable on March 1, 2016. On slide 19, as many of you will recall, during our Investor Day in New York, we gave 2016 earnings guidance of $2.75 to $2.85 per share. Today, we affirm that guidance range. There are certain important factors that could impact our 2016 results. And as we have done in the past, slide 19 outlines those factors that we have included in our earnings guidance range. Swings outside of these ranges could cause results to differ from guidance. Weather is generally the largest variable impacting our earnings. Our range of plus or minus $0.07 represents what we consider to be normal weather variation that we have included in our earnings guidance range. For our regulated businesses, we see variations of plus or minus $0.03 primarily from the timing and outcome of rate cases, the timing of completion of capital projects as well as variations in O&M and production costs. American Water Enterprises variability is driven mostly from the timing of future capital upgrades in Military Services and realization of our expected growth as well as claims costs in Homeowner Services. Variability for Keystone is primarily driven by natural gas prices and drilling activity in the Marcellus and Utica. I would also like to mention that our 2016 earnings guidance range includes estimated legal defense costs of about $0.03 per share related to the 2014 Freedom Industries’ chemical spill in West Virginia. As you may recall, we included $0.02 per share of legal costs in 2015. And lastly, I would like to address the expected impact from the five-year extension of bonus deprecation. From a cash perspective, we are in a federal tax net operating loss position. So, we do not receive a current cash benefit from bonus depreciation. We look at electing bonus depreciation on a state by state basis. In those cases, we’re adopting bonus depreciation would be in our customers’ best interest and where we expect to be able to utilize our NOL, we will do so. Assuming, we elect bonus depreciation in our regulated states, this would increase our NOLs and push out the expected timing of when we would become a cash tax payer by about one year to 2021. From an earnings perspective, while this would be expected to reduce rate base and earnings, we do not see a significant impact to our 2016 earnings guidance range, nor do we see a significant impact to our 7% to 10% compounded annual EPS growth rate for 2016 through 2020 because the rate base impact is largely offset by lower financing needs in 2020. We also have flexibility to mitigate some of the rate base impacts by redirecting a portion of our strategic capital already included in our five-year plan to our regulated businesses, as well as accelerating certain investments that continue to strengthen our critical assets for our customers. And with that, I’ll turn it back over to Susan. Susan Story Thanks, Linda. Before taking your questions, let’s review the American Water investment thesis we shared with you at our Investor Day and briefly discuss the American Water Foundation. On growth, we affirm our EPS growth goal of 7% to 10% for the next five years. We talked about our unprecedented 2015 capital investments, our continued O&M and capital efficiency and our plans for 2016. We know that reputation, operational excellence, reliability, and dependable water quality are critical to our growth. Where and how we expanded our customer base in 2015 leverages these strengths, growing through tuck-in, adding wastewater customers where we are ready to serve water and growing our market-based businesses. Our people have deep utility expertise and diversified experience and they are our biggest competitive advantage. They also care deeply about our customers in the communities in which they live and serve. This was clearly demonstrated about what our employees dealt with in both Missouri and Illinois during the last week in 2015. Record rainfall of up to 12-inches fell during a powerful three day storm across the Midwest, hitting the St. Louis area hard and causing record flooding. Homes and businesses were submerged, highways closed and water and sewer utilities faced extraordinary challenges. Missouri American has two plants on the Merrimack River, supplying water to about 20% of our customers in the St. Louis County area. Thanks to early planning and the construction of a system of temporary pipes and pumps. Our customers never loss service and we maintained excellent water quality throughout the event. Our wastewater teams also worked around the clock during the heavy rain to remove pumps and motors that otherwise would have been lost to flooding. But it’s not just what our Missouri team did for our own customers; it’s what they did for the surrounding communities in need. A local public water district had a flooded plant and lost the ability to serve its 20,000 customers. By opening a connection between the systems, Missouri American was able to help the district, serve many of those without water. Additionally, they worked with the National Guard to fill more than 500 tanker trucks that delivered our water outside of our service area, which brings me to the American Water Foundation funded by American Water’s parent company which keeps the communities we serve and have a better quality of life. One key Foundation partnership is with the Union Sportsmen Alliance, where we have worked with local union members to build walking trails, public access areas and fishing facilities for communities, including projects for special needs kids. The Foundation also has a partnership with a National Recreation and Parks Association in support of building better communities. Here, we focus on building or enhancing nature-based playgrounds for children and educating people on water and environmental stewardship practices. The Foundation also matches employee donations to qualified charitable organizations up to $1,000 per year per employee. Earlier this month, the Foundation made a $50,000 donation to the Flint Child Health & Development Fund to help the children of Flint, Michigan, get the resources they need to deal with the lead exposure many have experienced. These examples of doing good as we do well, demonstrate the dedication, expertise, strong character and the work ethic of the 6,700 people I get the privilege of working with every day. Certainly, our employees’ commitment translates into our strong financial performance, but it also let you know as our investors that we are a company, whose people believe not just in what we do, clean water for life, but also in how we do it. And we believe that it is critical for a company, who wants to be as successful in the coming decades as we are today. So, with that, we’re happy to take your questions. Question-and-Answer Session Operator We will begin the question-and-answer session. [Operator Instructions] Our first question comes from Richard Verdi of Ladenburg. Please go ahead. Richard Verdi Good morning, everyone, very nice quarter and thank you for taking my call here. Just a couple quick and easy questions; first, I guess Susan can you please speak to the strategy for capital raises the next few years to fund your program and how you think about raising the dividend versus buying back stock versus issuing equity? Susan Story Sure, Rich, and thanks for the question. I will start, and then Linda may want to jump in. So, when we look at all of the different uses of our capital in terms of growth, in terms of raising our dividend, in terms of regulated investment, all of those different things, we look at a balance in optimizing those and also where we get the biggest value from every dollar that we spend. So, we look at growth and the returns we get there. We look at regulated investment and let me be clear that in our investment plan, the first thing we do, is we invest whatever is needed in every one of our state to ensure that we provide safe clean water that meets all EPA standards. So, then beyond that is what we refer to as discretionary. But there is a base amount which is significant well over half of our capital that we spend to ensure that we provide those services. Then beyond that, we look at our dividend growth, which is, we have said, we want to keep consistent with our EPS growth. So, we want those to be correlated, so that’s the guidance we’ve given and we have a 50% to 60% payout ratio and currently we’re at the lower end of that range. So, there is room there. When we look at things like debt and I’ll let Linda talk about this more, the question we ask is what is best for our customers and our shareholders with the next dollar that we invest or whether we pay down debt or whether we’re able to provide dividend. So, as you know, to have a – to be in a strong financial position as we are, we have a lot of optionality and we’re always looking at how we optimize that optionality. Linda Sullivan And Rich, I would add to that that as we look and as we outlined in our Investor Day, when we look at the capital structure over the next five years, we continue to look at about 45%-55% equity to debt capital structure. Richard Verdi Okay, excellent. Thank you. And next on the O&M and efficiency ratio, clearly, this has been a great part of the story very successful, excuse me, couple of years back the stretch target was 35% for 2018, now the stretch target is 34% for 2020. Its 100 basis points lower in three years. I know a portion of these stretch targets were based on the ERP program a while back. Now they are predicated upon automation technology such as the Badger Meter contract recently announced. Without holding you to it, just trying to get a grasp on what lies beyond 2020, how possible is it that American reduces the O&M efficiency ratio by another 100 basis points by 2022 to 33%. And would automation and technology be the driver of that reaction or is there something underneath the American umbrella that could drive the third phase of O&M efficiency reduction? Walter Lynch Hey, Rich; Walter. I’ll take that question. Thanks for it. We’re not going to forecast beyond 2020 and a 34%, but I can tell you our teams are geared towards continuous improvement and that’s what’s driving this, and technology is going to be a big part of it. As you know, we are about 90% implemented with AMR. We’re also looking at AMI and the technology that we’re buying now is easily transitioned into AMI. So it’s a long-term solution. But I’d tell you looking at the people in our business understand the why and why we are reducing expenses. So we can invest in our infrastructure and provide excellent customer service. So it’s really throughout the business sharing best practices, leveraging our supply chain and reverse auctions and power and chemicals, so it’s a mindset and it’s a commitment by our employees that we’re going to get to where we need to go and they understand the why, and I think that is the key to this whole things, and that’s been the foundation for our success. Richard Verdi Okay. Great, thank you very much, and I appreciate it. And that’s it for me, I’m going to jump in queue, but I just want to say thank you very much for slide 36 and that’s very helpful. Susan Story Thanks, Rich. Operator [Operator Instructions] Seeing no further questions, this concludes our question-and-answer session. I would now like to turn the conference back over to Susan Story for any closing remarks. Susan Story Well, thank you, Kerry. And thank you all for participating in our call today. If you’ve got any questions, please call Greg and Melissa and they will be happy to help. I’d like to remind everyone that our 2016 first quarter earnings call will be on May, the 4, and our Annual Stockholders Meeting would take place on Friday, May, the 13. Thanks again for listening and we’ll talk to you in May if not before then. Thanks. Operator The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect your lines. Have a great day. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) 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Great Plains Energy’s (GXP) CEO Terry Bassham on Q4 2015 Results – Earnings Call Transcript

Operator Good day, ladies and gentlemen, and welcome to the Great Plains Energy Incorporated Fourth Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would like to introduce your host for today’s conference, Ms. Lori Wright, Vice President of Investor Relations and Treasurer. Ma’am, you may begin. Lori Wright Thank you, operator and good morning. Welcome to Great Plains Energy’s Yearend 2015 earnings conference call. On our call today will be Terry Bassham, Chairman, President and Chief Executive Officer and Kevin Bryant, Senior Vice President, Finance and Strategy and Chief Financial Officer. Scott Heidtbrink, Executive Vice President and Chief Operating Officer of KCP&L is also with us this morning as our other members of our management team who will be available during the question-and-answer portion of today’s call. I must remind you of the inherent uncertainties in any forward-looking statements in our discussion this morning. Slide 2 and the disclosure in our SEC filings contain a list of some of the factors that could cause future results to differ materially from our expectations. I also want to remind everyone that we issued our earnings release and 2015 10-K after market closed yesterday. These items are available, along with today’s webcast slides and supplemental financial information regarding the fourth quarter and full year 2015 on the main page of our website at greatplainsenergy.com. Summarized on Slide 3 are the topics that will be covered in today’s presentation. Terry will provide a financial overview and an update of our legislative and regulatory priorities followed by a discussion of our strategic plan. Kevin will discuss our financial results as well as our long-term target. With that, I will now hand the call to Terry. Terry Bassham Thanks Lori, and good morning, everybody. I’ll start on Slide 5. Yesterday we announced fourth quarter and full year 2015 results, earnings for the quarter were up $0.15 per share compared to $0.12 per share in 2014. Full year earnings per share were $1.37 compared to $1.57 a year ago. Our results were within our communicated guidance range of $1.35 to $1.45. Our 2015 results reflect continued disciplined management of our business of solving the regulatory lag typical of our Missouri electric utility prior to new retail rates going into effect. Also weather when compared to normal negatively impacted earnings were approximately $0.09 for the year. During the quarter, we saw the impact of the recently concluded KCP&L Missouri and Kansas rate cases. We also put in place several new riders and trackers including a fuel recovery mechanism in Missouri, and both the transmission delivery charge rider and a CIPS/Cybersecurity tracker in Kansas. Kevin will discuss quarter and yearend-to-date drivers in his remarks Looking forward we’re introducing our 2016 earnings guidance range of $1.65 to $1.80 per share in our long-term expectations and commitment to drive continued dependable shareholder returns through a combination of earnings and dividend growth. As reflected in our press release last night, we’re targeting annualized earnings growth of 4.5% through 2020 of the year’s guidance range. This growth will be consistent with our regulatory frameworks and will be driven by targeted investment in customer and grid operations, continued environmental compliance and disciplined cost management. In addition, continued investment in national transmission and in a growing regional economy support our earnings growth rate. For the decade long investment cycle behind us, increased investment flexibility and improving cash flows, we’re in a stronger position to grow our dividend moving forward. This confidence is reflected in an increased long-term annualized dividend growth target of 5% to 7% through 2020 and a narrowed dividend payout ratio target of 60% to 70%. Turning now to Slide 6, as we reflect on 2015, there is no doubt the outcomes resulting from the traditional elements of our 2015 Missouri and Kansas KCP&L rate proceedings were constructive with virtually no disallowances and allowed returned consistent with regional presence. However, we continue to be disappointed by the inability to gain traction on some of the more responsive and commonly accepted regulatory reforms we’ve pursued in our Missouri case to better respond to the current environment in which we operate. Bottom line, there is also no doubt, the current regulatory construct that has been in place for the last century is in need of a refresh. As a result, we’re working with others to bring about comprehensive, performance-based statewide energy legislation in Missouri that will enable us [supporting] energy infrastructure investments and evolve our regulatory construct the one that meets the needs of all stakeholders. These reforms will provide robust customer protections, support modernization of the grid to address aging infrastructure, improve reliability enhance infrastructure security and facilitate the transition to a cleaner, more diverse mix of energy resources. We believe those common sense reforms will create and help retain thousands of jobs and will completely position Missouri for economic growth. Effectuating this topic of regulatory reform requires hard work, significant stakeholder education and rigorous coalition building. We continue to work with other Missouri utilities, our customers and other stakeholders to advocate for energy and policy advancements in order to bring longer term solutions that benefit customers and shareholders. We’ll keep you posted of these efforts in advance throughout the year. While we’re encouraged by the prospects for real regulatory reform, we continue to also plan to invest consistent with our regulatory frameworks and make active general rate case filings until such changes materialize. To that end, two days ago, we filed a general rate case at our GMO jurisdiction, requesting an increase of $59.3 million on a rate base of approximately $1.9 billion, using a return on equity of 9.9%. The primary drivers of this requested increase includes new infrastructure investments and continued increases in transmission cost and property taxes. New rates are anticipated to be effective early 2017 and summary of the key components of the case can be found in the appendix. We are also in the planning stages for the next round of rate cases at KCP&L. In Kansas we’re required to file an abbreviated rate case by November 2016 to true up our cost for the La Cygne environmental project. In Missouri, we’re evaluating the timing of our next case, which will likely be during the second half of 2016. As a reminder, the rate case process in Missouri is 11 months, while Kansas is approximately eight months. Finally as you know recently the U.S. Supreme Court granted a stay of the clean power plant pending judicial review of the rule. The stay will remain in effect pending Supreme Court review till such review is solved. While we’ve previously worked to improve the emission profile of our generation with nearly 75% of our co-fleet scrubbed, we continue to evaluate the implications of the recent court action. Investments we’ve made over the last several years have afforded us flexibility, response or combination of strategies, including optimization of the operation of our existing generation fleet and investments in new renewable resources and the shutdown of our older less efficient unit. We will continue to monitor these developments and we’ll balance the need to transition to a cleaner energy portfolio with managing the cost impact to our customers. Slide 7 highlights our simple and clear strategy as predicated and closely managing our existing business, promoting economic growth and improving our customer experience. We remain focused on operational excellence and meeting the changing needs of our customers. For the past several years we’ve implemented information technology projects that include an automated leader infrastructure upgrade, leader data management installation and an outage management system replacement. All are part of our broader strategic focus of providing top tier customer satisfaction and operational excellence. We recently initiated a project to replace our customer information system that will further enhance our interactions with our customers. The installation and operation of our Clean Charge Network one of the nation’s first major electric vehicle charging networks has made Kansas City one of the best places to own an electric vehicle and as you’ll hear from Kevin, economic activity in our region continues to improve. With that, I’ll now turn the call over to Kevin. Kevin Bryant Thank you, Terry and good morning, everyone. I’ll begin with an overview of our financial performance on Slide 9. As you can see, earnings for the fourth quarter were $0.15 per share compared with $0.12 a year ago. Full year earnings were $1.37 per share compared to $1.57 per share last year. As detailed on the slide the $0.03 increase for the quarter was driven by new KCP&L retail rates in Kansas and Missouri and an increase in other margins resulting from a change in customer mix, lower fuel and purchase power expenses that do not go through a fuel recovery mechanism and an increase in transmission cost recovered through a transmission recovery mechanism. An increase in weather normalized demand also contributed to the increase. These impacts were partially offset by milder weather, increased O&M, depreciation and amortization expense and lower AFUDC. For the full year, the $0.20 decrease was driven by mild weather, lower AFUDC, higher depreciation and amortization expense and a tax benefit impacting 2014 that did not reoccur in 2015. The decline in wholesale margins due to lower gas prices in KCP&L Missouri were a fuel cost recovery mechanism was implemented late in the year also contributed to the decline. However, we were pleased to implement the fuel recovery mechanism in the quarter as it minimizes margin risk moving forward. These negative impacts were partially offset by new retail rates and increase in weather normalized demand, lower fuel and purchase power cost and higher other margins. We continue our laser focus on managing cost. For the year O&M exclusive of items with direct revenue offset, declined approximately 1%. Over the last five years as a result of our continued commitment to cost management, annualized O&M growth exclusive of those same items increased less than 1% despite increased pressure from emerging regulatory grid security requirements such as CIPS and cyber security. Demand growth also remains a key focus area. 2015 weather normalized demand growth grew 0.4% net of our energy efficiency program, marking our third consecutive year of demand growth. We plan active role in supporting this growth through competitive retail rates, providing customers with Tier one service and by partnering with our communities to offer tools that promote the economic strength of the region. More globally we continue to be encouraged by the broader economic climate in the Kansas City region. Year-to-date December 2015, the unemployment rate in Kansas City was 3.8%, well below the national average of 4.8%. The residential real estate market remained strong. The number of single family residential real estate permit issued in 2015 increased 10% over 2014. Including multifamily permits, the total for 2015 increased 7% over the same year — same prior year period. Turning to Slide 10 as Terry mentioned, we are introducing our 2016 EPS guidance range of $1.65 to $1.08. The primary drivers of this range include a full year of new retail rates in our KCP&L Missouri and Kansas jurisdictions; weather normalized demand growth, consistent with recent trends of flat to 0.5% net of the estimated impact of our energy efficiency programs and continued discipline cost and capital management. While we will likely see a bit of an increase in O&M for the year due to our strong actions and performance in 2015, we continue our laser focus on managing our business in the current environment. And on the weather front, the year is off to a bit of a mild start, but we have the rest of the year ahead of us and are confident in our ability to manage the year. In the capital markets area supported by our strong NOL position, we have no activity planned in 2016 and have no equity needs for the foreseeable future. Turning to Slide 11, we are excited about our long term opportunity to grow our business while meeting the increasing needs of our customers. As we look forward, we’re targeting annualized earnings growth of 4% to 5% through 2020 off of this year’s guidance range of $1.65 to $1.08. This earnings growth will be driven by annualized rate base growth of 2% to 3% resulting from more targeted investment to empower customers and optimize our grid. I won’t belabor the point, but we will remain disciplined in our cost and capital management. As we look at our O&M profile over the next five years, we’ll be working hard to manage our annualized growth rates to be in line with or below the historical rate of inflation. And as evidenced by our modest ate base growth plan, we will be intentionally focusing our investment consistent with our regulatory frameworks for regulatory lag in the material ongoing challenge. In addition we will continue to develop our national transmission business and our regional economy is healthy and supports our earnings growth profile. At a higher level and as you can likely go in from our comments this morning, our focus remains on minimizing regulatory lag. As Terry mentioned, we are actively working with a broad stakeholder group towards regulatory policy change in Missouri and are committed to evolving the regulatory construct. That said, change is not always easy and we are proactively responding to the existing regulatory construct by filing more frequent rate case. Bottom line is that our team is actively working to eliminate the dips in earnings we have historically experienced and believe this is our current best tool along with tightly managing our investment activities to minimize lag. However there are limits to this strategy as Missouri is based on a historical test year and 11 month rate case process. So given our plans for more frequent and sometimes staggered rate cases over the next few years, we do not expect the smooth upward earnings trajectory through 2020 as a material regulatory reform, but we’ll continue to see material revenue steps when new rates in the various jurisdiction become effective, offsetting the lag from jurisdictions for new rate have not gone into effect. Slide 12 contains a list of considerations for 2017 through 2020 much of which we’ve covered in our presentation today. I’d also like to highlight one additional item. The expansion of bonus depreciation while dampening our rate base growth rate did increase future income tax benefits to nearly $1 billion at yearend 2015. As a result we do not anticipate paying significant cash income taxes through approximately 2024 that eliminates the need for additional equity in the foreseeable future. The details of our NOLs and tax credits can be found in the appendix. And again our expectations for demand growth moving forward are consistent with the recent trends and we will continue our focus on operational excellence and tight cost management that separates again and active management of the rate case calendar to minimize lag. As we wrap up on Slide 13 I’d note that with a decade long investment cycle behind us and increasing cash flexibility, we are in a much stronger position for the next decade. Our confidence drives our increased long-term annualized dividend growth target of 5% to 7% with emphasis towards the top side of the range. This strong dividend growth target will lead to a dividend payout ratio of 60% to 70% with the flexibility for potential share repurchases in the later years of the target window. We’re excited to deliver the opportunities in front of us and have a clear commitment to strengthen our utility infrastructure and regulatory frameworks to promote regional growth and in fact — and exceed customer expectations while delivering dependable shareholder returns. Thanks for your time this morning. We’re now happy to answer any questions you might have. Question-and-Answer Session Operator [Operator Instructions] And our first question comes from the line of Charles Fishman of Morningstar. Your line is now open please go ahead. Charles Fishman Thank you. Terry the partnering that you’re talking about doing with other stakeholders in Missouri, is that the [10.28 house 24.95]? Terry Bassham Yeah. That’s what I was talking about. Charles Fishman And then I’m sorry are you getting the feedback like I am on my phone? Terry Bassham I’m not, but you’re a little fuzzy but… Charles Fishman Okay/ I’m on a headset, but let me keep trying. All right, just one other question I guess, we had this bankrupt — there was that aluminum smelter in the Southern part of the state and my impression was they never saw a rate increase or a tracker, they never saw one they liked and they always voted against or at least had their legislative representative vote against it and they were pretty influential. With their bankruptcy, does that — it’s unfortunate certainly for the employees, for the region, but does that give this thing, the new legislation a higher profitability than we’ve seen in the past? Terry Bassham Yes, certainly. You’re talking about Noranda, which happen to be the largest user of electricity in the State of Missouri and is an Ameren customer and certainly that has been one of our challenges in the past and with — I would just say that with the current process, we’re working through, we’re partnering with them as well. They were Ameren obviously, but yeah I would say that they are with us in terms of a final solution that would help solve several issues and that is one of the things that’s different about this session than has been probably in the last four or five sessions. Charles Fishman So my impression is after a — they were very little ensuring if they’re out of the process, that sort of sucks the oxygen out of opposition? Terry Bassham And it more than out of the process, they’re actually in the process in support of what we’re trying to do here. So it is a definite change to what’s been happening in the past. Charles Fishman Okay. Thank you very much. That was it. Terry Bassham Thank you. Operator Thank you. And our next question comes from the line of Brian Russo of Ladenburg Thalmann. Your line is now open. Please go ahead. Brian Russo Hi good morning. Terry Bassham Good morning. Brian Russo Just on slide 11, you noticed rate case, long term growth rate in 2% to 3% but an EPS growth rate of 4% to 5%. How do you try to capture the incremental EPS growth versus the rate base growth? Kevin Bryant Yeah so Brian that comes in a couple of forms. One is continued cost management, but more importantly as you look at us towards the end of an investment cycle, our equity ratios for regulated purposes have dipped a bit. We expect for our cash position to create an opportunity for us to improve our equity ratios as we come out of that side of the build cycle and so that combination with solid management and little growth we think leads to a solid 4% to 5% earnings growth trajectory. Brian Russo Okay. Got it and just the midpoint of your 2016 guidance, it looks like it’s kind of in line below 8% earned ROE, is that accurate? Kevin Bryant Yeah, it’s about a 150 basis points of regulatory lag. Brian Russo Okay. And you mentioned potential share repurchase flexibility in the future, maybe you could just elaborate on that a little bit? Kevin Bryant Yeah that’s something we wanted to just to put out there publicly. As we get to the end of a five-year cycle with an improving cash flow and a moderating CapEx profile consistent with our regulatory construct, we think we’ll have cash flexibility and so amongst other things not only improving our equity ratio, but we think that there may be potential for share repurchases in the latter edge of that timeframe. So it’s something we’re going to make sure we talk to focus about. Obviously several years away, but something that could be utilization of cash. Brian Russo Okay. And then just lastly what’s next kind of on the legislative calendar that we should be looking out for on these senate bills and the house bill line of utility regulations? Terry Bassham Yeah this is Terry the next step would be senate hearings. So that will happen in the coming weeks and it will probably work through that process before the house picks up and does anything, but we would expect senate to have hearings in the coming weeks. Brian Russo Okay. Great, thank you. Terry Bassham Thank you. Operator Thank you. And our next question comes from the line of Gregg Orrill of Barclays. Your line is now open please go ahead. Gregg Orrill Yeah. Thank you. Do you have year-end rate base numbers for KCP&L jurisdictions? Kevin Bryant I don’t think we have that broken out in this presentation. It would still be consistent with what we were talking about in the third and fourth quarter as we finalized our cases last year that totaled to the $6.6 billion of rate base in total. Gregg Orrill Got it. Thank you. Operator Thank you. And our next question comes from the line of Paul Ridzon of Keybanc. Your line is now open please go ahead. Paul Ridzon Thanks. My questions have been answered. So I stood out. Thanks. Terry Bassham Thanks Paul. Operator Thank you. And our next question comes from the line of Chris Turnure of JPMorgan. Your line is now open. Please go ahead. Chris Turnure Okay. Good morning Terry and Kevin. I just wanted to get some color on the later years of your CapEx forecast. There is a lot of environmental spend in there and a couple other drivers that kind of increased it in the later years. How can we think about that plan changing at all in response to success in that legislative arena or failure there pardon me, and kind of the same question on the ability for you guys to do a little bit better or get more constructed outcomes in our current rate cases, rate case now and the one later this year? Terry Bassham Yeah. So this is Terry and I’ll let Kevin jump in here as well. The focus for us on this legislation is first and foremost earning our allowed return on our current investments and being able to fully earn the ROEs the commission awards. Certainly if we had more certainty around a process, we would be able to invest additional dollars on certain things, but that would be based on need and potentially additional other legislation in case issues. The CPP from that perspective remember doesn’t have any specific dollars in our CapEx yet and so we wouldn’t remove anything based on that ruling, but it could be additive if in fact we got a specific ruling. So there’s opportunities there as well. Kevin Bryant Yes and the only other thing I might add is that towards the back end of this CapEx disclosure and we’ve extended it out obviously an additional year, what you see in that environmental line it includes investment to comply with the Clean Water Act. So potentially for equipment associated with some of our river plants. Obviously we think we have a little bit of flexibility that CapEx has shifted out in the ’18, ’19, ’20 timeframe, but that forms the basis of the majority of the environmental CapEx in that timeframe. Chris Turnure Got you. And then on the dividend as we look towards November of this year it could potentially be in two rate cases at that time in Missouri depending on your strategy going forward. How can we think about your comfort level during an increase at the same level that you did last year and kind of keeping up within the payout ratio guidance if you are in fact fully speed to regulatory activity at that time? Kevin Bryant Yeah I think we’ve been clear and in fact have done year after year now for many years we’ve taken the position that a healthy utility with growing dividend is important for our state shareholders and all stakeholders and we’re not bothered by the fact that we might have a dividend increase fall within the time period. We’re also considering a rate case and we’ve had good response. Nobody has suggested that that’s not appropriate. So our guidance here obviously around the dividend recognizes the fact you just mentioned and when time comes, we’ll evaluate that with the Board, but the rate case wouldn’t stop us from doing the right thing. Chris Turnure Okay. Good to hear. Thanks. Kevin Bryant Thank you. Terry Bassham And if I might real quick, I think Gregg from Barclays your question I got my act together and got the answer. It’s about $4.7 billion of rate base at year end for KCP&L and Missouri. Hopefully, that answers the previous question. Operator [Operator Instructions] And our next question comes from the line of Andy Levi of Avon Capital. Your line is now open. Please go ahead. Andy Levi Hey, good morning, gentlemen. Terry Bassham Hey Andy. Kevin Bryant Hey Andy. Andy Levi Hey, just quick questions. There is a big background, look at that. So on the growth rate did you say if I heard correctly, that it’s not liner, that it is choppy or… Kevin Bryant That’s right Andy. We’re trying to remind folks that with historical test years and 11-month process, you’re still going to see dips in regulatory lag, which creates the need for rate cases. What our current plan contemplates is more frequent rate cases to smooth out those grips. But again, it’s not just going to be a smooth 4% to 5% growth from this point through 2020. We’re still going to have to manage that current regulatory process unless we get a change in the regulatory mechanism as Terry discussed. Andy Levi So how should we think about this, oh, I am sorry, were you going to say something Terri? Terry Bassham No. Andy Levi Oh, I am sorry, this background thing is… Terry Bassham Sorry about this. Go ahead. Andy Levi So just trying to understand, so we take your 2016 $1.73 I guess that has been deployed and then we grow that 4% to 5% off the $1.73 through 2020, which gives you another not sure which are accompanied and that’s where you plan to get, but in between that it could be choppy, but it could ultimately by 2020 that’s the number we should focus on that you’re trying to say? Kevin Bryant That’s right. And I wouldn’t say choppy, it just won’t be a straight line because for example now we’ve got our GMO case that we’re getting ready to file. We’ve got four years of lag built up at the GMO jurisdiction. So when those new rates come into effect next year we’ll see those new rates, but remember we will have ongoing lag from KCP&L Missouri primarily due to transmission expense and property tax. In the interim and as Terry mentioned, we’ll file a case likely targeting the second half of this year and then those new rates will come in sometime after that case is filed. So we’re trying to eliminate that choppy thing, but it’s not going to be a smooth straight line through 2020. Andy Levi Got it. Okay. Thank you guys. Kevin Bryant All right Andy. Thank you. Operator Thank you. And I am showing no further questions at this time. I would now like to turn the call over to Terry Bassham for closing remarks. Terry Bassham All right. Well thank you, everybody for joining the call. Thank you for your questions and obviously we’ll keep you updated along the way as things progress. Have a good day. Operator Ladies and gentlemen, thank you for participating in today’s conference. This concludes today’s program. You may all disconnect. Everyone, have a great day. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. 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Common Mistakes Most Investors Make

Individuals are consistently promised that investing in the financial markets is the only way to financial success. After all, it’s so easy. Financial pundits across the country state that one simply buys a basket of mutual funds and they will make 8, 10 or 12% a year. On a nominal basis, it is true that if one bought an index and held it for 20 years, they would have made money. Unfortunately, for most, it has not worked out that way. Why? Because no matter how resolute people think they are about buying and holding, they usually fall into the same emotional pattern of buying high and selling low . Investors are human beings. Human beings naturally want to be in the winning camp when markets are rising and seek to avoid pain when markets are falling. As Sy Harding says in his excellent book ” Riding The Bear ,” while people may promise themselves at the top of bull markets that this time they’ll behave differently : no such creature as a buy and hold investor ever emerged from the other side of the subsequent bear market .” Statistics compiled by Ned Davis Research back up Harding’s assertion. Every time the market declines more than 10% (and “real” bear markets don’t even officially begin until the decline is 20%) , mutual funds experience net outflows of investor money. Fear is a stronger emotion than greed . The research shows that it doesn’t matter if the bear market lasts less than 3 months ( like the 1990 bear ) or less than 3 days ( like the 1987 bear ). People will still sell out, usually at the very bottom, and almost always at a loss. The only way to avoid the “buy high/sell low” syndrome – is to avoid owning stocks during bear markets. If you try to ride a bear market out, odds are you’ll fail. And if you believe that we are in a new era where Central Bankers have eliminated bear market cycles, your next of kin will have my sympathies. Let’s look at some of the more common trading mistakes to which people are prone. Over the years, I’ve committed every sin on the list at least once and still do on occasion. Why? Because I am human too. 1) Refusing To Take A Loss – Until The Loss Takes You When you buy a stock, it should be with the expectation that it will go up – otherwise, why would you buy it? If it goes down instead, you’ve made a mistake in your analysis. Either you’re early, or just plain wrong. It amounts to the same thing. There is no shame in being wrong, only in STAYING wrong . This goes to the heart of the familiar adage: “let winners run, cut losers short.” Nothing will eat into your performance more than carrying a bunch of dogs and their attendant fleas , both in terms of actual losses and in dead, or underperforming, money. 2) The Unrealized Loss From whence came the idiotic notion that a loss “on paper” isn’t a “real” loss until you actually sell the stock? Or that a profit isn’t a profit until the stock is sold and the money is in the bank? Nonsense! Your portfolio is worth whatever you can sell it for, at the market, right at this moment. No more. No less . People are reluctant to sell a loser for a variety of reasons. For some, it’s an ego/pride thing, an inability to admit they’ve made a mistake . That is false pride, and it’s faulty thinking. Your refusal to acknowledge a loss doesn’t make it any less real. Hoping and waiting for a loser to come back and save your fragile pride is just plain stupid . Realize that your loser may NOT come back. And even if it does, a stock that is down 50% has to put up a 100% gain just to get back to even. Losses are a cost of doing business, a part of the game. If you never have losses, then you are not trading properly. Take your losses ruthlessly, put them out of mind and don’t look back, and turn your attention to your next trade . 3) More Risk It is often touted that the more risk you take, the more money you will make. While that is true, it also means the losses are more severe when the tide turns against you. In portfolio management, the preservation of capital is paramount to long-term success. If you run out of chips, the game is over. Most professionals will allocate no more than 2-5% of their total investment capital to any one position. Money management also pertains to your total investment posture. Even when your analysis is overwhelmingly bullish, it never hurts to have at least some cash on hand, even if it earns nothing in a ” ZIRP ” world. This gives you liquid cash to buy opportunities and keeps you from having to liquidate a position at an inopportune time to raise cash for the ” Murphy Emergency :” This is the emergency that always occurs when you have the least amount of cash available – Murphy’s Law #73) If investors are supposed to “sell high” and “buy low,” such would suggest that as markets become more overbought, overextended, and overvalued, cash levels should rise accordingly. Conversely, as markets decline and become oversold and undervalued, cash levels should decline as equity exposure is increased. Unfortunately, this is something never addressed by the mainstream media. 4) Bottom Feeding Knife Catchers Unless you are really adept at technical analysis, and understand market cycles, it’s almost always better to let the stock find its bottom on its own, and then start to nibble. Just because a stock is down a lot doesn’t mean it can’t go down further. In fact, a major multi-point drop is often just the beginning of a larger decline. It’s always satisfying to catch an exact low tick, but when it happens it’s usually by accident. Let stocks and markets bottom and top on their own and limit your efforts to recognizing the fact ” soon enough .” Nobody, and I mean nobody, can consistently nail the bottom tick or top tick . 5) Averaging Down Don’t do it. For one thing, you shouldn’t even have the opportunity, as that dog should have already been sold long ago. The only time you should average into any investment is when it is working. If you enter a position on a fundamental or technical thesis, and it begins to work as expected thereby confirming your thesis to be correct, it is generally safe to increase your stake in that position. 6) You Can’t Fight City Hall OR The Trend Yes, there are stocks that will go up in bear markets and stocks that will go down in bull markets, but it’s usually not worth the effort to hunt for them. The vast majority of stocks, some 80+%, will go with the market flow. And so should you. It doesn’t make sense to counter trade the prevailing market trend. Don’t try and short stocks in a strong uptrend and don’t own stocks that are in a strong downtrend . Remember, investors don’t speculate – ” The Trend Is Your Friend .” 7) A Good Company Is Not Necessarily A Good Stock There are some great companies that are mediocre stocks, and some mediocre companies that have been great stocks over a short time frame. Try not to confuse the two. While fundamental analysis will identify great companies, it doesn’t take into account market, and investor, sentiment. Analyzing price trends, a view of the ” herd mentality ,” can help in the determination of the “when” to buy a great company which is also a great stock. 8) Technically Trapped Amateur technicians regularly fall into periods where they tend to favor one or two indicators over all others. No harm in that, so long as the favored indicators are working, and keep on working. But always be aware of the fact that as market conditions change, so will the efficacy of indicators. Indicators that work well in one type of market may lead you badly astray in another. You have to be aware of what’s working now and what’s not, and be ready to shift when conditions change. There is no ” Holy Grail ” indicator that works all the time and in all markets. If you think you’ve found it, get ready to lose money. Instead, take your trading signals from the ” accumulation of evidence ” among ALL of your indicators, not just one. 9) The Tale Of The Tape I get a kick out of people who insist that they’re long-term investors, buy a stock, then anxiously ask whether they should bail the first time the stocks drops a point or two. More likely than not, the panic was induced by listening to financial television. Watching ” the tape ” can be dangerous. It leads to emotionalism and hasty decisions. Try not to make trading decisions when the market is in session. Do your analysis and make your plan when the market is closed. Turn off the television, get to a quite place, and then calmly and logically execute your plan. 10) Worried About Taxes Don’t let tax considerations dictate your decision on whether to sell a stock. Pay capital gains tax willingly, even joyfully. The only way to avoid paying taxes on a stock trade is to not make any money on the trade. If you are paying taxes – you are making money…it’s better than the alternative.” Steps to Redemption Don’t confuse genius with a bull market. It’s not hard to make money in a roaring bull market. Keeping your gains when the bear comes prowling is the hard part . The market whips all our butts now and then. The whipping usually comes just when we think we’ve got it all figured out. Managing risk is the key to survival in the market and ultimately in making money. Leave the pontificating to the talking heads on television. Focus on managing risk, market cycles and exposure. STEP 1: Admit there is a problem … The first step in solving any problem is to realize that you have a problem and be willing to take the steps necessary to remedy the situation. STEP 2: You are where you are … It doesn’t matter what your portfolio was in March of 2000, March of 2009 or last Friday. Your portfolio value is exactly what it is rather it is realized or unrealized. The loss is already lost and understanding that will help you come to grips with needing to make a change. STEP 3: You are not a loser … You made an investment mistake. You lost money. It has happened to every person that has ever invested in the stock market and anyone who says otherwise is a liar! STEP 4: Accept responsibility … In order to begin the repair process, you must accept responsibility for your situation. Continue to postpone the inevitable only leads to suffering further consequences of inaction. STEP 5: Understand that markets change … Markets change due to a huge variety of factors from interest rates to currency risks, political events to geo-economic challenges. Does it really make sense to buy and hold a static allocation in a dynamic environment? The law of change states : that change will occur and the elements in the environment will adapt or become extinct and that extinction in and of itself is a consequence of change . Therefore, even if you are a long-term investor, you have to modify and adapt to an ever-changing environment otherwise, you will become extinct. STEP 6: Ask for help … Don’t be afraid to ask or get help – yes, you may pay a little for the service but you will save a lot more in the future from not making costly investment mistakes. STEP 7: Make change gradually … Making changes to a portfolio should be done methodically and patiently. Portfolio management is more about ” tweaking ” performance rather than doing a complete ” overhaul .” STEP 8: Develop a strategy … A goal-based investment strategy looks at goals like retirement, college funding, new house, etc. and matches investments and investment vehicles in an orderly and designed portfolio to achieve those goals in quantifiable and identifiable destinations. The duration of your portfolio should match the “time” frame to your goals. Building an allocation on 80-year average returns for a 15-year goal could leave you in a very poor position. STEP 9: Learn it…Live it…Love it … Every move within your investment strategy must have a reason and purpose, otherwise, why do it? Adjustments to the plan, and the investments made, should match performance, time and value horizons. Most importantly, you must be committed to your strategy so that you will not deviate from it in times of emotional duress. STEP 10: Live your life … The whole point of investing in the first place is to ensure a quality of life at some specific point in the future. Therefore, while you work hard to earn your money today, it is important that your portfolio works just as hard to earn your money for tomorrow.