Don’t be a Nervous Nellie–Instead Watch for Bargains

While we have lots and lots of very seasoned readers on this site we also have quite a few newer investors visiting this site–with 1000’s of daily visitors you know a lot of them are new to preferred and baby bond investing.

While none of us have a crystal ball that is good enough to foresee the future 100%, us more seasoned income investors do have some history that helps to guide our investing in turbulent times.

Newer investors in preferreds and baby bonds need to resist the urge to get out of markets that are tumbling (stock markets). Historically shorter term movements in common stock prices will have little affect on preferreds and baby bonds. For instance the 1-2% drop we are experiencing now is mostly inconsequential. On the other hand if we were to get 1,000 point drops in the Dow Jones Industrial Average 3 days in a row we would see some ‘dumping’ of preferreds and baby bonds as investors subscribe to the “sky is falling” calls from some pundits. Almost without fail if these ‘dumps’ occur they are buying opportunities–not a time to run for the hills.

Now with that being said we are not saying investors should buy preferreds and baby bonds without having a plan. For instance we have maintained a large portion of shorter maturity issues in our portfolio for a long time–not buying many perpetual preferreds (which have no maturity date). So term preferreds and short dated maturities in the baby bond arena is where I mostly ‘play’. For this I give up some potential income as these issues may have lower coupons. Your age, assets, and simply your personal risk tolerance factor into how one invests.

So investors are hopefully maintaining some level of cash (or near cash) so that if we reach a period of fear they can stand ready to buy some bargains. Over the long term buying some bargains when they appear can add substantially to your income stream.

65 thoughts on “Don’t be a Nervous Nellie–Instead Watch for Bargains”

  1. For those that also trade Spx. The double top target is 2600, which is also close to a .618 retrace fib. If we get that low it should correct in abc pattern, A down, B up, and C a lower low. ATB, Tim

  2. For newbees, generally for preferreds to hit “bargain rates” ala Dec. 2018, it isnt generally a magical event tied directly to common stocks, but the credit spread. The credit world “locked up” a bit and that caused the price drops. Look at this chart below.
    https://fred.stlouisfed.org/series/BAMLC0A0CM
    Presently credit spreads are very tight which thus aligns with high preferred prices. Keep in mind their are variations…In a recession the high yield credit spread could blow out and more pressure could be put on the higher yielding preferreds than the IG ones. Or you could have a 2013 taper tantrum down the road where the IG issues are more disproportionally affected than the higher yield ones.
    But to my know nothing opinion, everything looks compressed.

    1. An interesting graph over a long period of time.
      Lowering the federal funds rate is encouraging banks to take on more risk which could lead to an increased level of defaults which eventually may or may not manifest a credit contraction by banks. That in turn could affect the ability of lower credit rated companies to rollover credit which would affect the risk premiums on preferreds.

  3. Excellent piece, Tim. Old saying:

    “The stock market is the only market where things go on sale and all the customers run out of the store.”

    By extension, same thing could be said about the fixed income markets.

    If you can’t stomach a 5-10% downdraft in stocks, much less a 40-50% drop, you shouldn’t be in stocks.

    Regarding fixed income, it’s still expensive! The FI market is still much closer to 52week highs than lows. Drops are buying opportunities. My panic buy point is much lower than where we are now. I am looking for a repeat of last December.

    So much static in the air the potential for a panic sell off are definitely present.

    1. bob-in-de, agree with all you say. My panic buy points are mostly measured in dollars, not cents–much lower from where we are today.

  4. My high light of the day was selling my new Gladestone…..And then buying them back 13 cents cheaper. That is Rida Moron tale tale fib, if I am going to pronounce that trade as a bargain hunting one.

    1. I had the same “problem” when AGNCM first came out. Every time I thought was done with it. the price would drop and call me back. I bought and sold it 3 extra times without planning to.

      My non-highlight today was deciding to bail out of NLY-F at a good price, and that’s how I found out I sold it last week.

    2. I don’t get it. Grid, I think you are poking fun at Rida, but my question is thus… If you had 1000 shares and essentially “made” $130, that means you “spent” $25,000 and change. Are there not other things to do with $25,000 that would net more than $130 pittance? Maybe that’s what they mean by “a quick buck”.

      My question is really a lot deeper than this. My portfolio is mostly stocks, and because of this site, a growing number of preferreds and baby bonds. I may try my hand at trading more now that my commissions are $0, but are there no better investment instruments? I’m possibly getting a settlement for an injury I incurred at work – possibly upwards of $40,000. I already max my retirement accounts, so the only place to put this would by my taxable account. Even without commissions, I’m going to get hammered on the short term gains (assuming all my bets are good ones….) But, If my winners and losers equal, then what’s the point.

      Beyond my rambling, what’s a good place to park a large sum of money where I won’t end up just giving my gains to the govmn’t? Most likely, the money will be eaten by a follow up surgery, so maybe a moot question. But if I could grow it a bit before giving it to the doctors, then maybe I can come out a little bit ahead – maybe like $130 (minus taxes)

        1. Yeah, but that doesn’t address what to do with a lump of money. Roth is already maxed this year. I’m trying to figure out how to make $40,000 grow into something more than a foot surgery.

      1. Mark – Just a thought – perhaps you’re confusing “investment instruments” with trading instruments…. Wash, rinse and repeat with trading instruments for $130 per and after a while you have some real profits… And not to speak for Grid, but I would doubt the target goal was to lock in $130, but as the market changes so drastically in 2 days, ya gots to takes yer chances and decide whether you think +$130 might be better than a possible -$400. There are many on here who separate “investing” from “trading” and enjoy being active in both areas with mentally separated funds…

        1. 2WR, I do wonder how much “running room” this Gladestone issue still has. Seems to have topped out, but it hasnt went OTC yet and may bump there a bit. Unlike other IPOs there is no realistic path to $27 with this one.

          1. Grid – You know that’s more your game than mine, so, using a quote from one of our favorite silly movies, “Joe Vs The Vollcano,” I have no response to that…. As you probably could guess, my only entry into this was to buy GOODP and GOODO, the called issues upon the issuance of GLSDP. Explaining the rationale behind doing that for so little pennies potential I bet would just blow Mark in CO’s mind..lol That’s why I didn’t mention it but it could be one way to take your advice regarding not risking doctor’s money prior to surgery but still make an OK (what just OK?) annualized return essentially risk free…..

            1. 2WR, I know its not quite the called layups are, but have you given consideration to playing some small ball on TDK? Its sister TDI implies a decent safety net there.

                1. Ken, At least my memory worked on one ticker correctly, lol. Yes I meant TDJ. TDE is basically in same boat as TDJ, considering it goes exD a month earlier. Yes, TDI is way up there. TDA has similar yield as TDI, but is under par while the former has a pretty poor YTC to go with it.

              1. Grid – Given Ken’s clarifications I can safely say without hesitation, no, I’ve never considered playing small ball on TDK… lol… However, the game you’re describing in general is very much the kind of thing that appeals to me. I very much like the downside price protection that’s afforded when purchasing high coupon bonds/preferreds that may or may not be on the cusp of being called and then gambling against them being called right away. Part of that mentality, however, is having a willingness to accept the reality of YTC and being willing to achieve only that yield… If you remember way back when, I bot HGH under that premise, feeling assured it would be called at its first call date in ’22 no matter what happened to interest rates because of its extraordinarily high f/f premium of 30 day LIBOR plus 5.596. At the time, I bot at 4.50% YTC. Following the same premise, I just sold it at prices between 1.75% and 1.55% YTC. I didn’t even bother to pay attention to YTM or current yield when I bot or sold. Just recently, I’ve been playing that same idea for the same reason with CUBI-C and E and also INBKL… INBKL was easy because it provided a good YTC and its YTM was actually higher than what was available on the recent INBK issue INBKZ. So yes, I do like issues like the imaginary TDK and its real brethren TDJ and TDE, but I’ve never really looked into the credit (yet). It’s a way that I can accept owning longer stated maturities or perpetuals when in general, the duration risk normally would bother me too much, irrational as that may sound in today’s environment.

        2. 2WR, I am shooting for the stars on this flip. NGCHZ. Saw it drop to 25.67 yesterday so I bought 500. Its already up 33 cents. That would put me at over $150 bagging this one, lol.

            1. Mikeo, if it isnt a ute preferred, I cant keep tickers straight. Cant trust the ol memory anymore I guess…The correct and tradeable symbol is NGHCZ. The ol Karfunkel family thing. Wont hold it very long I promise.

              1. Tim, you gave me a pass because you have given up, and just expect me to post it wrong anymore, ha.

              2. Nah–just don’t want you to proof read everything I type–and gig me on every period, comma etc that is out of place.

                1. Typos are the bane of the internet, for me anyway. If one of my posts has none it is a rare occurrence indeed.

      2. Mark, yes there is always more to it than I posted. That Gladestone issue was purchased with my trading money in Roth. I cant use margin and cant put money in it. I saw an issue I was ready to pounce on so I sold this to free up the cash. The downdraft on other issue disappeared and price went back up.
        Since opportunity was gone and Gladestone slipped, I just repurchased cheaper and carried on like nothing ever happened.
        Though this “gain” was more accidental, I have no problem making a quick $100-$200. Do it all the time. Hitting a button a couple times to make what some person would have do working at Walmart all day resonates with me. I remember making $2.15 an hour in a crap job growing up. 🙂
        Yet, I fully appreciate others who do not want to. And certainly wouldnt want it to interfere with ones allocation model. I may add, I dont live off my investment income so I can do what I want without concern. Its my pension fund manager that needs to be on his game.
        Im sorry I really cant give you direction being one who is conservative with “needed money”. If this money is designated for your health, I would be hesitant to say anything more than locking in a shorter term tbill maturing before your surgery.

      3. MARK IN CO, it’s a trading style. Most people are buy&hold investors, and that’s fine. Some people also do short term trades. Lots of them. If I can make a quick $130 profit 5 times a week it adds up. this requires different strategies and a time commitment — I consider this my job, I gave up regular employment to trade stocks. Which gives me even more incentive to find the extra profits.
        Yes it’s weird putting down $20,000 to make $130. But it sure beats waiting weeks to earn $130 dividends on that same money.

        1. Martin, I dont call it a job, but I do it often myself. I just find it fun. After I figured out how to do it (and ride the good fortune of eternally mostly declining yields more importantly) I find it very enjoyable.
          I try to do most in tax free, but it doesnt always work that way. The lower tax brackets from tax cut have minimized more for me the taxing differential between LTCG and short term.

          1. I trade mostly IRAs because that’s where my money is. I trade my wife’s standard accounts though I tend to hold them longer. Mostly because I don’t want all that paperwork at tax time.

      4. Buy TQQQ when you think the market has hit bottom and is heading up and SQQQ when you think the market has topped out and is heading south. Then take your profits and run. You’ll have to pay taxes on quick earnings no matter what, unless you just buy and hold.

          1. Hi all, Thanks for all the thoughts and comments. Since I still have a day job, I do not feel I have the time to work on trading. But my buy and hold philosophy (Motley Fool) type investing has been rife with learning opportunities. I think a blended approach is probably where I am headed, but most of my purchases are in the $1000 or less camp as I still do not have a large sum to work with – albeit growing steadily over the past several years. In the original post, my $1000 purchase and swap that Grid executed would have netted me a paltry $3.25. Now, I don’t mean to scoff at money, but that really seems like a waste of time – at least until I have larger sums of money to work with. In the meantime, I just try to add to current positions and scoop up new positions that interest me. I’ve considered just selling everything and starting with a clean slate. I’m up overall, and most of it in IRA’s, so wouldn’t be a big hit. If I did that, then I would have a little larger sandbox to play in. Well, the size of the sandbox doesn’t really change, but the amount of sand would. Now with $0 commissions, the idea is even more tempting. Wouldn’t cost me to sell; wouldn’t cost me to buy back in. And I could use all my ‘training’ to better choose what I invest in. Sooner or later there will be a market swoon where I could re deploy a lot of that capital and keep some dry powder to capitalize on new opportunities.

            Now that I type that, I’m even more tempted. Anyone think that’s a terrible idea?

            1. Selling everything? Do you hate everything you own? If you do that, do you really have time to learn more, given that you already have a fulltime job?

              Many will tell you that trading is a fulltime job. Or if you insist on selling everything now, you could just do what this guy does until you have the time to fiddle productively with your holdings. Especially since you apparently have time on your side.

              https://seekingalpha.com/instablog/280262-investment-pancake/5356290-secret-special-sauce

              JMO

              1. Hi camroc,

                Thanks for the link. Great article. I read a lot of investing news and agree, most of it is a waste of time. And yet, I can’t stop from reading

                Not sure how often people look back at these older threads, but I have not had an opportunity to reply until today. …

                No, I do not hate everything I own, but so much of my portfolio is awash in red that I just get depressed. I’ve added to many of my positions as I watched the share price drop, hoping for an eventual rebound. My oil stocks have languished. One went bankrupt. I started buying in 2013 and 2014 just before the oil swoon. I figure if I sell everything, then I can buy back into the ones I want at prices near my dollar cost average. Since my commissions have gone to $0, then I can nibble instead of being worried that my trading commission is 1% or more of my total purchase. I wouldn’t necessarily have to start learning all over again. I know it’s kind of a knee jerk reaction, but if we are headed for a recession, then having my portfolio in cash would allow me to average in with a new, reset basis. If we are not heading for a recession, then I would do the same and just start dollar cost averaging again. As Gridbird mentioned below, low cost index funds typically outperform most money managers. I’d probably focus a much larger portion of my portfolio in those instruments. Additionally, I have just been buying what looks interesting. I have not had a plan or set of goals in place – just hoping to get lucky, really. As Vg points out below, I really need to start making a plan – one that can provide a little clearer path to retirement without all the gambling mentality. A portfolio full of cash will be much easier to do that with instead of one tied to 50 or so individual stocks, most of which have under performed the broader market. I have been dabbling this way for almost 10 years – the entire bull market – and have a modest 10 to 15% gain over that period. I would have been much better off putting everything in VOO or SPY. Nevertheless, I have enjoyed the ride. I think I’m just ready to get off this train and find a new set of tracks – ones with a clearer path to a destination instead of this ‘every which way’ one.

                Is this just stupidity, or is there any logic in what I am thinking?

                1. Mark, I made a conscious decision to comment little on financial web sites. I am extremely compelled to respond to your heart-felt post and search for real financial answers. My background is legal as I went to Law School in Michigan and worked on Wall Street for 24 years primarily managing billions of institutional money and some for wealthy individuals. My belief is the vast majority (95%+) of investors should simply invest in broad based extremely low cost ETF’s (like VOO). This will give you a distinct advantage to make money with low volatility and take some emotion (and bad timing) out of owning individual equities you have sadly experienced. One of the best articles I have read https://jlcollinsnh.com/2011/06/08/how-i-failed-my-daughter-and-a-simple-path-to-wealth/
                  Each player must accept the cards life deals him or her: but once they are in hand, he or she alone must decide how to play the cards in order to win the game.” – Voltaire
                  Be well my friends, Nomad

                2. Mark – I don’t think you’ve mentioned – what’s your age bracket? That would greatly influence proper advice anyone should give and for you to accept..

                  1. Hi 2WR – I’m 49 1/2.

                    Nomad, I read the blog and several other articles. Thanks for the response to my post. I took the plunge and dumped 37 individual securities from my portfolio. I locked in a $13,000 gain – all Roth and IRA, so no taxes. Pretty much exactly 10% return on my money. At least it wasn’t a loss…. At any rate, I opened mutual funds VTSAX and VBTLX at Mr. Collins recommendation. I put in the minimum $3000 to get them started. I’ll add regularly to each fund with the proceeds of my stock sales. Probably 80/20 split for the time being. I still have about 30 more positions that I will look at and decide what to do with them, but in the meantime, I trimmed the holdings and feel much lighter. I had no idea I was over 70 holdings – the makings of my own index fund…. Pretty soon I’ll be able to stop reading investing sites… (that’s for alpha8) – also, alpha, I read your link as well. That was really interesting that only 4% of stocks have been responsible for pretty much all the gains. More evidence that I needed to reboot my strategy.

                    Grid, those are also some bleak numbers. Even more evidence…

                    I also just discovered that TDAmeritrade offers a free financial advisor of sorts. Going to see what they have to say.

                    Thanks again for all the thoughtful responses to my questions and musings.

                    1. Mark, congratulations on taking the first step to simplifying your investment portfolio. I am sure you will learn great lessons on your journey.
                      This is the VTSAX track record:
                      YTD +17.68%
                      1-Year +2.55%
                      3-Year +12.35% Average
                      5-Year +10.51% Average
                      10-Year +12.71 Average
                      15-Year +9.02% Average
                      I truly wish you well in your exigent investment future and would suggest you not concern yourself too much with the day to day volatility of the US and world equity markets.
                      Even if you had invested your lifesaving on the Monday before one of the greatest tragedies in US history Tuesday 9/11/2001; The U.S. economy is legendary for its strength and resilience, and the national character is persistently optimistic. No more than one month (!) had elapsed before the Dow Jones, the Nasdaq and the S&P had regained its pre-9/11 price levels.
                      I am a believer in the (VOO) S&P 500:
                      YTD +18.22%
                      1-Year +3.42%
                      3-Year +12.88% Average
                      5-Year +10.87% Average

                      Courage is being scared to death—but saddling up anyway.” – John Wayne
                      Nomad

                    2. Mark, Nomad’s sage advice is similar to that offered by none other than Buffett himself. If pursuing this strategy, you may want to also consider the benefits of dollar cost averaging to further lower volatility.

                      If you’re also interested in a basket of preferred stocks a corner of your portfolio, stay here on Tim’s site for the most consistently thoughtful and collegial education you could possibly receive.

                    3. Mark, how much longer do you plan on being in the workforce until retirement? This will be a question that coincides with your proper allocations of investment classes. As you approach retirement, and assuming you are living off this money, you will need to devise a sequence of return risk allocation and adjust accordingly.
                      What I mean is you dont want to get caught with your investing pants down with a 50% capital loss in a market down turn right after you retired and are cut from your job salary. That is called the sequence of return risk.

                    4. I am unable to reply to the below comments…

                      Grid, I essentially assume I’ll be working till traditional retirement age. Hopefully not in the garage door business still…. so, roughly 17 years. I plan to be pretty aggressive up until close to that time. That, and keeping an eye on the state of things. Clearly, we cant forsee the black swan events, but situations such as our current one could spark some re-balancing. Haven’t ruled out working after retirement either. I’d like to have a rock shop / espresso / hot sauce / antique / and artisan store someday. Or maybe a B&B.

                      Alpha, I do plan to dollar cost average. I haven’t decided on the amount, but plan on once or twice a month, for the next couple years, adding to each of the funds. 90/10 split or something like that. If the market starts going down, increasing the allotments accordingly.

                      Nomad, thanks again for the sentiments; and performance history of what will soon be my 2 largest holdings.

                      I have another question though. I have some preferreds and baby bonds currently and I am trying to decide if I should keep collecting interest and divvies while I reinvest the money I just liquidated, or if I should just go ahead and liquidate those as well. I’m concerned about having too much idle cash. I still have some dividend paying stocks as well. Are there better places to park money other than the TD sweep account? I’ll have to see what the interest paid is on that account. Probably not much…

                    5. Mark, just some random thoughts. 17 years is a long time. So you should be comfortable with market declines while continuously contributing over time. This actually would be taking advantage of market declines by lowering cost basis contributions and then ultimately benefitting from further upswings.
                      Though as you approach retirement “sequence of returns” risk will appear and then several years before retirement adjustments may need to be considered to “protect the nut” as you enter retirement.
                      There isnt anything inherently wrong with owning some individual issues and preferreds. Most financial advisors recommend no more than 10-15% of their stash in preferreds….But yet many sound financial gurus will state preferreds are horrible investments (common stock risk without common stock returns, act like bonds when rates rise, asymmetric risks of owning, etc.)
                      Then you have philosophical battles between “total return investor”, “Dividend Growth”, “High yield”, etc. etc. Many ways to skin a cat. And of course their are index model portfolios that feature “x” amount index common stock, “x” amount bonds, and “x” precious metals.
                      Some get more diversified and break down various index funds into large cap, small cap, and international also.
                      Perhaps some reading on model portfolios may help you understand what you want. It doesnt have to be complicated though. Warren Buffett has frequently stated to effect having 90% in a low cost S&P 500 mirror index fund and 10% bond fund would suffice for most.
                      And of course the old saying…Time in the market beats timing the market. 🙂

                3. Mark, 2WR, and Nomad bring very salient points. But in general, this reality cannot be overstated…From this year…
                  Active managers who claim that they would do better during periods of heightened volatility are going to have to find another argument.
                  For the ninth consecutive year, the majority (64.49 percent) of large-cap funds lagged the S&P 500 last year.
                  After 10 years, 85 percent of large cap funds underperformed the S&P 500, and after 15 years, nearly 92 percent are trailing the index.
                  I dont invest in common stocks 99% of the time, but if I did it would be low cost index funds.
                  If one is an income investor, its not hard to beat preferred index returns. But that is a whole different ball of wax than common stocks. And no way over say a 10-20 year cycle would I even suggest preferred stocks would outperform common stocks. But, I consider them separate unrelated classes in terms of performance.
                  In reality “Seeking Alpha” is not beating the market, but achieving ave. market returns. Being “average” is actually vastly superior to average investor returns…
                  Here are a couple of Buffett pearls of wisdom from the interview:

                  Basically any attempts to pick the times to buy or sell, I think, are a mistake for 99% of the population. And I think that even attempts to pick individual securities is a mistake for people.”

                  They don’t need to do anything but (invest in a low-cost S&P 500 index fund). Then they’ll get a decent result over time. To some extent, the smarter you try to be, the worse you do in investments. Now, there’s a few professional investors that will do better than the S&P over time. But the average individual isn’t going to be able to find them. And they don’t need them. That’s the beauty of it.”

                4. Mark, You’re not alone. Most any investor worth their salt has been in your position at least once. The good news is you’re receiving solid advice from a lot of talented and genuine folks. Tagging on to the recent thread, I’d strongly recommend a read of: 1) https://ritholtz.com/2017/09/can-find-best-performing-stocks/

                  …and consider following up on a few of the links in the article.

                  You’ve indicated you’re reading voracious amounts and are in the process of making a plan. I’m sure everyone here would recommend staying that course.

            2. Buy low, sell high. The market has already dropped more than 1200 points, so now may not be the best time to sell.

              Start small. Do virtual trades (practice trades) in your account to see how you would have made out. There’s a fine line between trading and gambling. You don’t want to gamble with your savings. You should have an overall investment plan based on your age, risk tolerance and future objectives.

              It’s fine to get advice from seasoned pros of preferred stock trading, many of which are on this site, but if you are a newbie not only to preferreds but also to investing, research a variety of sources. Maybe even visit a fee-only financial planner to help you hammer out your goals.

              My 2 cents.

            3. Mark, unless you are going into total trash high risk issues, preferreds are not going to give you big trading returns. Its just a way to goose 6% income streams a bit. But I dont do it for windfalls and I suspect others dont either. I would be very careful before I started active trading and think hard.
              There are a couple truths I think need to be considered. 1) Passive index funds (common stocks) over time is rarely beaten by any professional money managers….Never have money in the market that will need to be accessed within a few years.

  5. Preferreds dropping with the tide are a bargain because it’s not logical. Preferreds care about Bankruptcy risk and Interest Rate risk. They’re not as vulnerable to changes in earnings and other things common stocks care about. Unless we’re headed for a wave of bankruptcies.

    1. Additionally Preferreds carry the risk of suspended dividends (especially those whose dividends are non-cumulative).

  6. Despite PFF being down over 50 bps (which is a lot for the preferred market), I’m not seeing any signs of dumping yet. The closest things to bargains are some of the mREIT prefs that are candidates for call have come down to/around stripped par. For example, CMO-E, TWO-E, and MFA-B are all pretty darn close to par and losses would be minimal if called (which I don’t expect would happen without PFF making another leg higher past 52 week highs).

    AGNIP is also now back under par for those who missed out on that IPO. TDE, WRB-B, and WFC-PP which are down over the past few days due to PFF rebalancing are probably the best values I see out there right now.

    When the stock market sold off in August, it wasn’t really enough of a selloff to cause much preferred dumping. In that selloff VIX topped out at 25. It’s currently at 20 and I think we’d need to exceed the 25 level from August before there’s sufficient panic for dumping/dislocations.

  7. Tim, Historically, what happens to preferreds like TOO’s when a higher quality buyer takes them over? After the merger, are these basically Brookfield preferreds? What can go wrong assuming the merger happens?

    1. Brookfield could make an offer to buy them at some price between current market value and the $25 call price. I just don’t understand what happens if one does not accept Brookfield’s offer. Is there a way for Brookfield to stopping paying the dividend? Anybody have any input? Thanks.

      1. Brookfield could stop paying the dividend, however, these are cumulative and they wouldn’t be able to pay a common div until prefs are caught up. There also may be lawsuits if TOO clearly has the ability to pay but they suspend the preferreds anyway.

        No one has to accept a tender but Brookfield could drive down the price to possibly 12-15 by delisting them from NYSE and sending them to the OTC market. Then they’re free to buy them back in the open market.

        That said, they could also do the honorable thing and continue paying the preferreds so long as TOO generates sufficient cash flow. Private equity isn’t known for its honor though.

        1. Once TOO is taken over, wouldn’t it be Brookfield cash flow rather the TOO cash Flow? Would these not be equal to a Brookfield preferred going forward?

  8. Short term maturities may be more stable but long term maturities have higher yield to compensate for the risk. There’s room for both in a laddering strategy.
    As a short term trader I like the volatility and yield of the long maturities. I buy the short terms as my sweeps account between purchases.

    1. Martin G – I’m mostly not short term trading, but I actually have added a few perpetuals, in limited number, to help my overall yield.

  9. Yup, agree. I bought all my preferreds in the low 20s during the last “sky is falling” scare. They were all investment grade too, I might add.

    Thanks for your very practical and helpful columns, Tim

      1. Agree last December was a great time to buy. Let me add to the thoughts for anybody getting nervous. Oct is one of the worst months historically for the stock market. Not sure why but it sure has a bad history. So its historically a great time to buy low. This year, I have plenty of cash

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