Other Supply/Demand Issues Impacting Pricing of Preferred Stocks
I think that I am going to fire my Head Trader for selling the 100 of the Phoenix senior bond.DEFENSE OF PFX SALE IN IRA This is sort of the Cramer approach I think.
Since Mr. or Ms. Sliman has me talking about preferred stocks at least for now, I have some more comments about them.
I said in the prior post that I have not yet been caught holding a preferred stock when the dividend was deferred or eliminated by the company. Eliminated would be a better word to describe the non-payment of a non-cumulative preferred dividend. I would say that I came very close recently with BEEPRA.
Another issue relating to preferred stocks that many may not consider is supply/demand issues. When Paulson murdered the Fannie and Freddie preferred shareholders, figuratively of course, and then Lehman went under, preferred stock holders were reminded just how quick their investment could run toward zero. This would dry up demand and increase selling pressure in all preferred stocks. There is a second problem, and it has to do with leveraged closed end funds that invest exclusively in preferred stocks. I mentioned in an earlier post how leveraged closed end funds owning REITS probably had to be sellers of those securities, both the common and preferred issues. If you have leverage at a 1/3rd to 1/2 of the value of the securities held, using the borrowed money to increase the amount of securities owned, then what happens when those securities fall 50% in value, or worse for many REIT securities last year? It is not hard to find leveraged closed end funds that own preferred securities, with several companies having a variety of offerings including for example Nuveen and Blackrock.
So, you have two factors hurting preferred stocks in 2008 before you even start considering the merits of an individual issue. Besides, I do not like fixed income perpetual preferred stocks as a general rule and many investors also view them as a disfavored asset class for the reasons discussed in these posts, a lack of maturity and low seniority just being the two main reasons.
Most everything that I say in these posts could be the subject of an intelligent disagreement between knowledgeable and intelligent individual investors. Someone could take a hard look at Goodyear Tire, for example, and decide to stay away from buying a senior bond. I could have a long discussion with such a person, and acknowledge the validity of many of the negative points being made in the discussion. I would not be inflexible or have any ego issues involved in my opinion. My opinion could change based on a good argument against my view and I will change my opinion based on an assessment of new information or a reassessment of old information. Each decision has to reassessed continually as if someone other than me made the original decision, as if I inherited my accounts from someone else every day of the year. Now, I have not inherited anything. I am just talking about how I look at the 300 or so securities that I own every day.
I am no longer in a capital accumulation phase. My key investment objectives are capital preservation and income generation.
I started to buy stocks in the late 1960s.
I have a balanced worldwide portfolio with a considerable allocation to cash. Starting in December 2016, I started to reallocate out of cash and into high quality short and intermediate term bonds and FDIC insured CDs using a ladder strategy.
I have been paring my stock allocation, selling gradually into the robust stock market rally occurring since the U.S. election.
In this blog, I will be discussing only a sample of my recent stock trades. I will be discussing almost all of my bond and CD trades.
I am not a financial advisor but simply an individual investor who has been managing my own money since I was a teenager. In this blog, I am acting solely as a financial journalist focusing on my own investments. The information contained in this blog is not intended to be a complete description or summary of all available data relevant to making an investment decision. Instead, I am merely expressing some of the reasons underlying the purchase or sell of securities. Nothing in this blog is intended to constitute investment or legal advice or a recommendation to buy or to sell. All investors need to perform their own due diligence before making any financial decision which requires at a minimum reading original source material available at the SEC and elsewhere. For purchases of bonds and preferred stocks, the prospectuses need to be reviewed until fully understood by the investor.