Does a Big League Business Need Big League Stock Liquidity?

Over the past 18mos TPL has evolved from a sleepy Trust to a fairly well known entity that is actively trying to grow EPS via a new and untested (water) strategy.

Can we argue that the purpose / ethos of the Trust has changed?  I think yes.

Do counterparties look at the performance of TPL stock as a sign of health when deciding to contract for water or other services?  Perhaps.

Do “big league” companies regularly have -7% down days in the complete absence of news?  No.

Are such drawdowns good for the confidence of counterparties?  No.

These things happen when the market makers “quote” the stock in 10 point markets.  10 points on $486 base price is 2%.

Is 2% an acceptable round trip trading cost for an entity with a $4B market cap?  No.

The conventional argument against a split was that the Trust is interested in keeping the price low for buybacks.  Well, where are they?  It appears as if capital return is shifting to dividends.

If the return strategy is dividends, why should the Trust care about the price?

If they don’t care about the price, should the Trust split the stock to enhance liquidity?  Yes.

The days of penny stock liquidity should be in the past for $TPL.



I remain a buyer.



7 thoughts on “Does a Big League Business Need Big League Stock Liquidity?

  1. Fully agree with your comments! The bid/ask spreads are often horrifyingly large. Its seems to be a feature of this stock to rip your face off with large spreads by the market makers. No idea why the don’t split the stock, other than there is some cache to having a stock that sells in the hundreds per share.

    I have owned a core position since 2011, and have traded some shares a few times, but every time, even with level 2 quotes, I feel taken advantage of. A 100 share buy often means there is $1,000 swing between bid and ask, and thats just crazy for a stock of this market cap and number of shares. As you eloquently put it, this is not a thinly traded pink sheet or bulletin board stock.

    As an example, BWEL is, and is very thin, less than 100,000 shares in the public float. Trades in a similar $500-600 price range, yet the spreads are often $5 or less. Makes me think something different is happening with TPL market makers.

    Liked by 1 person

    • That’s a really interesting and troublesome observation about the swing between bid and ask. I haven’t bought or sold sub-shares for many years as a long-term investor. Think my cost basis was probably under $30 (split adjusted) when I acquired shares in the 1980s, and I don’t have the free funds to snap up any more sub-shares at current prices (even as undervalued as I think it has become). There’s a point that is always mentioned in the intro section of the annual reports: “As permitted by the Declaration, the Trust may negotiate prices on unsolicited blocks of sub-shares which it may be offered from time to time.” Does anyone know what this means in practicality? For example, let’s say I was ready to sell 1,000 sub-shares but wouldn’t want my sale to immediately sink the trade price on the NYSE, I wonder if I could offer to sell back directly to the Trust?

      Liked by 1 person

    • Many good arguments it would seem to split the sub-shares, which hasn’t been done since 2007. I know a split is really just more or less a psychological jolt to the stock, but I think it could do wonders for TPL — especially if it would lead to more buyback volume and address the troubling bid/ask swing you describe.

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  2. One of the things that Horizon Kinetics has said repeatedly in their quarterly comments is how they look for assets that others don’t have in their index/etfs/portfolios. HK has pointed out repeatedly how TPL isn’t in any ETF. One of the biggest reasons is because it is thinly traded. It couldn’t handle the daily market volume of buying and selling to balance portfolios of the ETF/Index/etc. So I’m staying on the side of the fence that keeps the stock thinly traded. Granted right now, TPL seems to be doing more tracking with oil than anything else. And yes, I agree, the bid/ask spread sucks, but part of why its a unique investment. I mean, hell, where else can you talk about Texas Pacific Land Trust and people go “Texas Pacific who??” At least our group of investors knows.

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  3. I am right there with you, Smyth. I also like it for the lack of correlation or involvement with any indexes, and I appreciate the unique characteristics of the investment. Its really a wonderful inflation hedge, plus the optionality of royalties, easements, the water business, etc.

    TPL is different as an investment vehicle, but when you compare it to other thinly traded unique story stocks, the bid/ask spreads seem much greater. Crazy wide spreads are a “feature” of this stock that defies any reasonable explanation. 😀

    Liked by 1 person

  4. I know the short trading day means liquidity may be more difficult today, but gee, we are $531.87 bid, $555 ask. Thats the biggest spread of $23.23 I have ever seen. And its this kind of thing that probably keeps some institutions and individuals from owning.

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