Common Stocks Can Go Down?

For the 1st time today I looked at the stock market numbers at 11 a.m. (CST)–wow the DJIA is off 200 points. I didn’t know stocks ever fell–in particular 2 days in a row.

So just for the fun of it I turned on the TV (which I seldom do during the daytime anymore) and found 5 panelist on CNBC arguing about the market fall–each one of them was the smartest person in the room, at least that is what was conveyed.

Honestly while I don’t want to see a stock market crash, or even anything close to it, it would do all the smart people some good to see the equity markets take a nice 10% or even 20% setback – once we see that kind of a market we will at least have more of a clue who really knows what they are talking about.

Also a nice tumble in markets would separate the wheat from the chaff on Seeking Alpha where the never ending “recommendations” by some folks of total crap companies really grinds on me. With the ‘rising tide lifts all boats” market these folks are allowed to lead the sheep to slaughter. Not that there are not some good items on Seeking Alpha, but most of the most popular writers are legends in their own minds.

I concentrate on what I own–I watch interest rates and some potential causes of movement in the rates. I can’t say I get any ideas off of the TV and I get few ideas from Seeking Alpha–BUT I will admit to stealing ideas from the folks commenting around this website. I am only looking for a 6-7% annual return–I don’t need ideas from goofballs-and their are plenty of them out there.

31 thoughts on “Common Stocks Can Go Down?”

  1. Lots of welcomed comments today and I appreciate all of them.
    Mostly trade term preferreds, bb, and dabble in all area’s. Anyone
    playing with AIF @8.19 % going x-div around 12/14?

    1. AI is a risky long term hold. They’re not going bankrupt in the next 2 weeks so dividend capture could work sans bad news. Nice yield but I’m not playing it because of the outside chance it could tank before I sell.

  2. After reading comments here, I just realized I hadn’t read an SA article in months. Since I’m mostly in preferreds and baby bonds, I have very little interest in some of SA articles. I had even stopped my “notifications” months ago. Since Tim has opened this site, I know it has helped a lot of investors way of investing and education. Tim, I am grateful for your time, effort and dedication to opening this awesome site!

    1. Puck49–for better or worse you can spend an awful amount of time on this site–or others–I like it that you are here–thanks.

      As Landlord said there are some ideas he picks up on Seeking Alpha in the higher yielding issues–thats great–wherever one can find an idea is always good.

  3. Ok, I have to come in and defend SA a little here. I (very) occassionally write on the site but I follow everything related to preferreds pretty religiously (or at least I try to). While SA doesn’t hold a candle to this site when it comes to preferreds, there’s a wider net cast at SA including high yield preferreds. I’ve noticed most folks on this site are mainly in IG rated rated preferreds, which is fine and good (I own plenty of those too) but there are opportunities in HY as well. Unlike some who may just be looking for a very safe 6-7%, personally, I’m looking to replace S&P500 exposure through my preferreds portfolio.

    Some good higher risk ideas I got from SA recently include CTBB, CMRE-C, AFINP, and CBB-B which have of course been discussed on this site as well but not necessarily as in depth. There’s some good coverage of mREIT prefs if you’re into that. Yes, these are higher risk/reward but I think they could easily end up beating the SP500 over the next five years which I think will have a very low single digit return over that timeframe.

    There’s also some good common stock coverage of companies where I own the preferreds, such as NS and TGP.

    Coverage of Canadian preferreds isn’t great anywhere. This site’s chatroom is the best I’ve seen (thanks in no small part to Dr. Bob).

    1. Landlord, No shame in writing there. Tim has in the past and Kaptain Lou here has wrote a few articles. You wont be flogged here for your beliefs! 🙂
      There are some decent writers and info there. But they have to be honest people and many are shysters. I should be more positive on people like Micheal Boyd, Arbitrage Trader, Darren McCammon for their honesty and ideas.
      Its the wanna be amateur balance sheet readers like some of Ridas gang and their twisting of the truth that burns me. I enjoy helping naive people understand the tar pits one can fall in trusting their word “safe” and “high quality”. Though I admit I like to post to poke Pendynut who just isnt well versed in fundamental mechanics of investments he recomends and teach him a lesson. I do respect Preferred Stock Trader. He is an honest and well intentioned person along with very well versed in his risk range of investing.

      1. Yeah, you really have to be careful about who you’re reading and of course, always do your own DD but no one can be aware of every opportunity out there worth investigating on their own. It takes a village. 🙂

        I think to Rida’s credit, he realized preferreds are not his expertise and he hired Preferred Stock Trader to come up with ideas and write many of his preferred stock articles (RLJ-A was a recent one). He also hired Beyond Savings who writes about REITs and REIT preferreds and I thought his recommendation of MNR-C was very good. Trapping Value also works for Rida now and he occassionally covers Canadian preferreds as he’s Canadian.

        Colorado Wealth Management Fund is the best on mREIT preferreds and while he has a paid service, he also provides a decent amount of analysis on the free site.

    2. Hi Landlord–writing on there is no problem–I was one of the very first to write on there back in 2008 and if I had the time I might do so again. I do skim headlines as I follow 5-10 people. My problem is those that lead folks to believe that ‘safe’ is really safe–when those of us that have been almost purely preferreds for 10 -20 years know better.

      As you said there are high risk/high reward issues that some folks have covered–and which I dabble in from time to time, but I don’t want to extrapolate the last year or two into a ‘forever’ hold type security. This year has been pretty spectacular for us preferred and baby bond holders, but this can change in a heartbeat.

      When we go into a bear market in either commons stocks or preferreds newer folks will likely learn a lesson–not everything is up, up, up we will all have some bruises along the way.

      1. Tim, one of the biggest perpetual falsehoods the amateur professional money taking services state is how safe the preferred is. And that one can get out in plenty of time if common dividend is cut (a separate misconception, but I digress) or preferred divi is suspended. That is just not how it works. The price will collapse prior to any of that occurring generally and the preferred can feel the heat before one can determine there is meaningful new risk.
        This doesnt mean like you stated one cant invest in high yield. I dabble a bit there myself. But there needs to be a meaningful plan. But I have plan on low yielders too. When I made a quick couple bucks on EP-C a fee months ago, I said I would get back in if it ever sank back to “par”. Well a liquidity dump occurred past 2 trading days and I finally got my chance. But I wasnt getting back in until it met my price point.

        1. “The price will collapse prior to any of that occurring generally and the preferred can feel the heat before one can determine there is meaningful new risk.”

          Grid, that’s why I’m such a big advocate of tracking the common stock price for high yield preferreds. The common stock price will almost always tank first and that will be your biggest and most important warning sign. Preferreds usually move with a lag to common.

          I think the big exception is with agency mREITs where a declining common stock can be a false flag if the common is declining due to lower rates. While lower rates compress NIM and leads to div cuts for the common, it can also mean higher book values which provides more protection for preferreds (unless higher refi rates hit BV). You can see this phenomenon with NLY and AGNC common vs. preferreds. In most other instances, though, if there’s only one data point you look at when monitoring a high yield preferred, it should be the common stock price.

          1. Its good to have a process, but one still takes their chances, so the best defense if one plays is proper allocation size to minimize portfolio pain. Take Just Energy today… The common today was down 17% while the preferred was down 42%.

      2. Here is another example today…CBL just suspended the common and preferred through 2020 (that is it for now). This have been a rat trap for several years and people were warned. Yet many continued to dumpster dive thinking it was a free lunch on the preferreds. Not so much after all.

        1. I see CBL-E started today at an already embarrassing $10.25 and after market has hit sub $7. Another good warning besides Just (Dont Do It) Energy preferred today which also sank 40% today alone finishing sub $10 also.
          Dont just look at a tempting yield, get under the sheets and find out why it is that way. If you cant prudence requires sitting out. You can pick 5 high yield winners and then the wrong one will make you wish you were studying the 5 year CD rates online instead.

          1. Who’d a thunk’d it? Guess who, after having written bullish articles about CBL and its preferreds every other month in all of 2018 actually advised his lemmings to unload CBL preferreds in March of this year?

    3. REIT preferreds are my main game. 6.5 – 8% yield and boost profits by trading between them on price movement.

      Isn’t CBB-B in trouble?

  4. My prfds have taken a bit of a hammering the last 2 days. A couple of stop losses I keep on perpetuals got hit 🙁

  5. I agree Tim. I wonder if we can get a like button👍 on your site, so we don’t have to comment. Thanks for your work.

  6. Very weird start of the month. I think it’s all due to flows. Unfortunately fundamentals matter close to zero. Otherwise a correction was due already long ago.

  7. Concur wholeheartedly!
    I feel like I make my investment research (and ultimately decisions) based on the following souces ( rough estimate)
    This Site, Tim, and all the good folks involved….85%
    Seeking Alpha…20%
    TV Talking heads…. Minus 5%.

    …And when the brown stuff hits the whirly thing on the ceiling , I anticipate The III % will rise still further..

    1. The quality of Seeking Alpha dropped a lot this year. And if you read the comments it seems we are back to the same level of ignorance I used to see in the old yahoo message boards. Such a pity.

      1. Completely agree. Once the SA owners started “monetizing” their creation and putting everything behind the pay wall, the quality of the analysis took a huge drop.

      2. SA has a couple good analysts of preferred stocks you just have to know which ones to ignore. Biggest problem is the news is several days old, they are publishing to promote their pay sites for real time info. The reader comments can be a useful way of gauging investor sentiment because short term trades aren’t always about fundamentals.

      1. I was trying to sell AQNB, only partially filled. Then it gapped down. Actually this Canadian note is not really a fantastic note, despite its defacto SWAN. Now the bid declined quite a bit. After selling my TOO-E, bought after ex dividend, still could be dicey despite my personal respect to Brookfield private equity, I bought a little more on SPKEP, with its current Q higher gross margin with slight total revenue. What seems to me a hidden gem is QVCD, yes the old one. After studying FIDO for dividends paid and ex dividend date PLUS Le Du’s engine, its almost $0.40 has NOT yet ex’d. Picked up 190 shares @$25.09 with dividends ex on 2/27/2020. In my retirement account, I FOOLISHLY bought 142shares of the new QVCC @$24.96. Sometime in mid-day, it could be bought at $24.87 perhaps. It is now trading par with perhaps 356,000 shares sold at this time plus a little more last Friday. I suppose the silly Moody way below IG rating probably dimmed the investors’ interest despite SP IG rating. I sleep perfectly well with SP IG. This is just me. With significant rise in 10 year Treasury note today, there is some Taper Fear sort of action. I probably will place the remaining AQNB overnight. Actually I do believe that AQNB is grossly overvalued vs. either QVCD or QVCC.

        1. Partial fill on AQNB and bought 155 more shares of QVCD @ $25.06.
          BTW, many in Silicon are buying RILY preferreds, notes etc. Then they also went ahead with LTS-A. Difficult to figure what works … of course, it could work until it does not … quoting Gridbird. Doug Le Du made some positive remarks on CODI preferreds. CODI’s debt apparently was deemed as Investment grade by Moody. I would never have guessed. Too late perhaps, both B and C preferred unit are above par. Then the Schedule K1 will get ALL your income as guaranteed payment, taxable EXACTLY the same as ordinary income. Hence, I would rather throw the dice on SPEKP, QDI 8.5% coupon.

        2. AQN is an interesting firm and the ceo speaks quite well. I’ve not looked into it as deeply as I should but am concerned that buying their issues will in create Canadian tax obligations. I know that I can draw back but with all the K ls and other stuff, I rather keep things simple. How do you deal with the issue? I think the have one issue which is actually u.s. dollar issued in the u.s. so that it is probably only subject to u.s taxes but have not sorted it out. Any light on the matter appreciated. best sc

          1. sc, I have owned (AQN) Algonquin Power in a taxable account since 2010 and I have been extremely happy with its principle and dividend growth. There is a 15% withholding, though you should be able to avoid this if you own this utility in a tax free or tax differed account. If bought in a taxable account you can also file to get the withheld tax back with IRS form 515
            Wishing you profitable investing, Nomad

            1. NAM
              thanks the inputs.I too like the company but I lived abroad for many years and could not open a tax free account. Now as I suggested, having to fill out another form seems just a bit off putting. There are lots of fish in the sea. But I do appreciate your note. Thank you again and all the best for the New Year. SC

          2. I have owned AQNA in a tax free IRA account. Since it trades directly on NYSE and is not OTC, no withholding at either Fidelity or Schwab.

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