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Preferred Stock Investing-The Good , The Bad and The In Between
Old 09-03-2016, 08:24 AM   #1161
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Preferred Stock Investing-The Good , The Bad and The In Between

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AAprB. It's the convertible; callable 10/1/17.


Convertibles are mostly a bet on the stock price at conversion time next year. If AA-B was converted today it would turned in $31.30 of AA common stock. Convertibles from what I have monitored track the common very closely and slightly above conversion exchange to allow for the yield inducement at purchase. If AA goes up in value, you will benefit from that at conversion and of course the opposite occurs if its stock price is lower a year from now.
I certainly do not have a bad opinion of it. But, if I owned I would consider it a common stock purchase with a one year "yield spicer". If I liked AA as a company I would buy (I have no incite on Alcoa). With regular preferreds, you can "hate the common stock" but "love the preferreds" and buy them. But with a convertible one should "love the common" as it will track it very closely.


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Old 09-03-2016, 10:31 AM   #1162
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AGO-F $25.72,
Mulligan - for as squirrely as you can be, I'm shocked that you'd consider a bond insurer! To me, a bond insurer is magnitudes worse than even a property/casualty insurer. You can somewhat predict some things like weather patterns, but to be beholden to municipalities/utilities/even other governments around the world (according to their description), how could you sleep at night knowing you're on the hook for their fiscal problems? If it were yielding a fat yield, I'd consider it more...but at a mere sub-5.5% yield, there's no way in hell I'd consider it comparable risk to a ute, or a bank like Wells Fargo.
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Old 09-03-2016, 10:45 AM   #1163
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No, no, no... I didnt recommend it, and I never mentioned I was buying, which I am not. I just posted what that portfolio manager recommended he was buying... I only looked at the Ally-A issue... I just finished out the article as that is where I got the Ally-A idea from....And I bought a bit... Though I may be forced to buy more, ha! I have been drifting more into banks with fewer options. Probably getting close to 20% of my stash now. Though I guess that is low since financials make up somewhere around 85% of all preferreds in market value. The rest of his selections as I mentioned in my precious post I had not looked at. And still haven't... And probably wont. They didnt "catch my eye" like the ALLY-A did.



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Old 09-03-2016, 10:57 AM   #1164
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Mostly we have just discussed trades, but while I am thinking, I thought a little strategy post may be needed now...Basically for almost 3 years, I have feasted on past call above par issues, and flipping quite frequently often buying same thing over and over. It is worked very well, with almost zero market angst while avoiding all market ups and downs. But, like anything, it works until it doesnt....And I think the "doesnt part" is steam rolling down the path....Rates have just been low too long now. Companies reaching to expand profits in low growth environment are now with more frequency plucking the "low hanging fruit". Though most were not mine, past call preferred issues are dropping like flies...
The risk/reward is just not there anymore for me. Protecting my double digit returns are more important than risking money on past call above par issues...I may be pruning a bit more, with no real strategy yet of what to buy. One thing is certain....I bought 500 shares of AES-C looking to flip 300 of them around next divi time as holding that many is a bit beyond my comfort zone. However, being close to par, and no viable suitable replacements, I may have to change my mind and hold them all due to no viable alternative.


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I've just been buying and holding. The only issue of the four that I own where I am exposed is AILLL. Bought at 26.60, collected one divy so far this past month, so I am exposed to the tune of $592.97 over 500 shares. My other three issues are all callable at my purchase price, pretty much plus I've collected several quarters of divy's already. So has your reasoning on owning AILLL changed any Mul?
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Old 09-03-2016, 11:17 AM   #1165
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No, no, no... I didnt recommend it, and I never mentioned I was buying, which I am not. I just posted what that portfolio manager recommended he was buying... I only looked at the Ally-A issue... I just finished out the article as that is where I got the Ally-A idea from....And I bought a bit... Though I may be forced to buy more, ha! I have been drifting more into banks with fewer options. Probably getting close to 20% of my stash now. Though I guess that is low since financials make up somewhere around 85% of all preferreds in market value. The rest of his selections as I mentioned in my precious post I had not looked at. And still haven't... And probably wont. They didnt "catch my eye" like the ALLY-A did.
That portfolio manager included a closed end fund of preferred (going from memory) which I looked at and thought that it brings a lot of diversification and returns ~7.3 %
The symbol is: HPF
I do notice it is a leveraged preferred share holder and the expense ratio is what I consider high 1.23% (or 1.70% once you add in the interest cost for leveraging).

I wondered what you thought about it ?
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Old 09-03-2016, 12:45 PM   #1166
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Thanks for suggestions, Sunset. I wish more would toss them out to cuss and discuss! However, I just made a personal decision when I first started buying to never use leverage. Especially since short term fear rate hikes are approaching they could really upset the applecart. Yield only is a by product of the underlying preferred plus the "leverage goosing". When you see low bond rated issues such as AES-C going for 6.6% and the fund is delivering that kind of yield, it is either in a bunch a trash or doing a heckuva a lot of "yield goosing". Dont get me wrong it can be a great tool. My understanding and trust level of using artificial instruments is just not within me. But this is only me and not a reflection on its suitability for someone to buy.
As far as my AILLL goes, its kind of like being married for 50 years to someone and the spouse develops Alzheimers. You were together in the good times and will stay together until the end. But no, after seeing the call landscape one in good conscious cant recommend it at this price. It currently trades about 6% above par, so that is a might decent "call haircut". We do know next divi is coming though.


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Old 09-03-2016, 12:48 PM   #1167
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Speaking of squirrelly issues, Moorebonds... When that $212.00 hits your bank account from FIISO Oct. 3, your gonna be thinking "Man I love them squirrelly non callable cumulative preferreds".


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Old 09-03-2016, 01:02 PM   #1168
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BTW- While I am remembering....But I thought Golden or Sunset maybe owned KCC (or others) but I wanted to make sure this point was known about it...KCC is exactly the same type of issue CVB and PJS. If you havent read look up a few posts and read it. The same principles apply to KCC. Though that issue has been largely called already, the brokerage can use its "call warrants" to finish off the issue. So largly if someone called the brokerage and said we want $3 million worth of that Unum bond, they could call it immediately with 30 days notice. Give you the $27.60 or so, and then profit the difference by selling
underlying bond and booking the profits.
It just becomes a math problem to them on whether it is worth their time and money. I had this process explained clearly to me by an astute investor about 2 weeks ago. And all be darned if he wasn't right as PJS was yanked just Friday. I have no incite whatsoever on whether CVB or KCC will ever be called. I just wanted you to know the mechanics behind it. The bonds are all way above par, so there is easy money to be made by the brokerages if they so choose to call. One just has to measure the risk/reward in determining to own or sell.


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Old 09-03-2016, 01:05 PM   #1169
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.....
As far as my AILLL goes, its kind of like being married for 50 years to someone and the spouse develops Alzheimers. You were together in the good times and will stay together until the end. But no, after seeing the call landscape one in good conscious cant recommend it at this price. It currently trades about 6% above par, so that is a might decent "call haircut". We do know next divi is coming though.
.....
I did look at AILLL, but the thought that it is ~ 1 year worth of div's over par makes me pretty reluctant. Which is why I'm still looking for other things.
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Old 09-03-2016, 01:16 PM   #1170
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I did look at AILLL, but the thought that it is ~ 1 year worth of div's over par makes me pretty reluctant. Which is why I'm still looking for other things.


There has been a lot of calls lately from all industries... Its really hard to even consider any past call issue trading more than a divi above par. And those are getting very hard to find......


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Old 09-03-2016, 02:55 PM   #1171
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Alcoa is in the midst of a planned restructuring where it is planning to separate into two entities, in such cases the plan usually ends up giving one entity the majority of debt and the other entity better prospects, similar to a 1/2 bankruptcy so all the assets of the entire corporation do not go down in flames with the entire company. Alcoa for me would be a no go zone for preferred so I have not expended the energy to try and determine the profitability and possibility of preferred payouts for whichever entity is assigned the preferred.
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Old 09-03-2016, 03:22 PM   #1172
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Speaking of squirrelly issues, Moorebonds... When that $212.00 hits your bank account from FIISO Oct. 3, your gonna be thinking "Man I love them squirrelly non callable cumulative preferreds".


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I'll take an army of squirrels if I can get my hands on them! I guess the morning coffee hadn't kicked in yet and I hadn't read your post closely enough. I though it was weird for you to be mentioning issues like that.
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Old 09-03-2016, 03:50 PM   #1173
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BTW- While I am remembering....But I thought Golden or Sunset maybe owned KCC (or others) but I wanted to make sure this point was known about it...KCC is exactly the same type of issue CVB and PJS. If you havent read look up a few posts and read it. The same principles apply to KCC. Though that issue has been largely called already, the brokerage can use its "call warrants" to finish off the issue. So largly if someone called the brokerage and said we want $3 million worth of that Unum bond, they could call it immediately with 30 days notice. Give you the $27.60 or so, and then profit the difference by selling
underlying bond and booking the profits.
It just becomes a math problem to them on whether it is worth their time and money. I had this process explained clearly to me by an astute investor about 2 weeks ago. And all be darned if he wasn't right as PJS was yanked just Friday. I have no incite whatsoever on whether CVB or KCC will ever be called. I just wanted you to know the mechanics behind it. The bonds are all way above par, so there is easy money to be made by the brokerages if they so choose to call. One just has to measure the risk/reward in determining to own or sell.


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The one thing that I would say about an issue being called is that investors do not like it to happen just so the broker can make a few bucks... IOW, if they called every issue they could profit 8% or so on then people would either require a longer no call period or not buy them when offered...
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Old 09-03-2016, 03:53 PM   #1174
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Alcoa is in the midst of a planned restructuring where it is planning to separate into two entities, in such cases the plan usually ends up giving one entity the majority of debt and the other entity better prospects, similar to a 1/2 bankruptcy so all the assets of the entire corporation do not go down in flames with the entire company. Alcoa for me would be a no go zone for preferred so I have not expended the energy to try and determine the profitability and possibility of preferred payouts for whichever entity is assigned the preferred.

Unless they state that clearly then putting all the bad stuff in one of the entities is a good way to get sued... you cannot knowingly put bad stuff in one and good stuff in the other and say 'good luck' to the one entity... if they do not make it in the first couple of years I would bet that the shareholders would sue the good company...
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Preferred Stock Investing-The Good , The Bad and The In Between
Old 09-03-2016, 08:17 PM   #1175
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The one thing that I would say about an issue being called is that investors do not like it to happen just so the broker can make a few bucks... IOW, if they called every issue they could profit 8% or so on then people would either require a longer no call period or not buy them when offered...


Ah, Texas, if you ever have a used car for sale, I am buying from you...An honest man! That isnt how it works with investment brokerages... Remember back when they would push common stock recommendations to retail investors, while shorting the same stocks they were pushing? Besides, its all up and up..Read the prospectus of any issue ( and especially trust issues) it clearly states they can be called after the call date by the "call warrant holders". And at any time after that. That is just the way it works...Look at 95% of all trust issues issued in past 15 years that are all past call date....They are all gone! The brokerage has a prearranged deal with an acquirer to buy the bonds. The acquirer must bring the "cash to the table" when the 30 day warning is served....If they do not, then the brokerage does not call it and trust lives on. Read how it is worded.... Notice the word "intended exercise". This is the wiggle room on the "anticipated call". If the suiters don't come up with the cash, the brokerage doesn't call... Trust me...I know what I am talking about here. The informant who explained this is a walking encyclopedia on this stuff. But you are right in they are NEVER going to publicly state what is going on...You notice it isn't mentioned? This is the official SEC filing call on PJS from Friday.

On September 1, 2016 The Bank of New York Mellon, as Trustee for the PreferredPLUS Trust Certificates Series FAR-1 Trust (the “Trust”), issued a press release regarding the receipt of a notice of intended exercise on October 3, 2016 (the “Exercise Date”), of the outstanding Warrants representing the right to acquire (a) 1,800,000 of the Trust Certificates at an exercise price equal to $25 for each security being exercised plus accrued and unpaid interest up to but excluding, the Exercise Date. A copy of each of the press releases is attached as Exhibit 99.1 hereto.



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Old 09-03-2016, 08:26 PM   #1176
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I'll take an army of squirrels if I can get my hands on them! I guess the morning coffee hadn't kicked in yet and I hadn't read your post closely enough. I though it was weird for you to be mentioning issues like that.


Hey, we PM....Your life is 10 times as hectic as my little retiree life is... Its amazing you have enough spare time to even read ER! Looking back, I wish there had been a 1000 of those shares available for us to have gobbled up! But maybe not more or I may have went nuts... I may have went crazy and when someone asked if my portfolio was diversified I would have said yes... A a few bills in my checking account and everything else in FIISO, ha!


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Old 09-03-2016, 10:56 PM   #1177
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Ah, Texas, if you ever have a used car for sale, I am buying from you...An honest man! That isnt how it works with investment brokerages... Remember back when they would push common stock recommendations to retail investors, while shorting the same stocks they were pushing? Besides, its all up and up..Read the prospectus of any issue ( and especially trust issues) it clearly states they can be called after the call date by the "call warrant holders". And at any time after that. That is just the way it works...Look at 95% of all trust issues issued in past 15 years that are all past call date....They are all gone! The brokerage has a prearranged deal with an acquirer to buy the bonds. The acquirer must bring the "cash to the table" when the 30 day warning is served....If they do not, then the brokerage does not call it and trust lives on. Read how it is worded.... Notice the word "intended exercise". This is the wiggle room on the "anticipated call". If the suiters don't come up with the cash, the brokerage doesn't call... Trust me...I know what I am talking about here. The informant who explained this is a walking encyclopedia on this stuff. But you are right in they are NEVER going to publicly state what is going on...You notice it isn't mentioned? This is the official SEC filing call on PJS from Friday.

On September 1, 2016 The Bank of New York Mellon, as Trustee for the PreferredPLUS Trust Certificates Series FAR-1 Trust (the “Trust”), issued a press release regarding the receipt of a notice of intended exercise on October 3, 2016 (the “Exercise Date”), of the outstanding Warrants representing the right to acquire (a) 1,800,000 of the Trust Certificates at an exercise price equal to $25 for each security being exercised plus accrued and unpaid interest up to but excluding, the Exercise Date. A copy of each of the press releases is attached as Exhibit 99.1 hereto.



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I think I can provide another example for comparison clarity... Take BGLEN for example... It got called and you knew it could be called as it was past its call date.. The company BGE originated the issue so it is responsible for the call. People knew this when buying the IPO. Take PJS that just got called... It was issued by Merrill Lynch. Like BGE it is the issuer, so it retains the right to call after the call date. Remember you have no direct ownership in the underlying bonds. You just own "certificates" that were issued by Merrill through the Trust. The Trust is set up to ensure no "financial hanky panky" goes on with the underlying bonds held in trust.
This allows Merrill to do what BGE does...Call when it is in their economic best interests to do it...After call date issuing brokerage has these options... 1) Do nothing 2) Patiently wait for bond appreciation to the point it feels its most profitable 3) Call issue... But they never just call it because bond is above par and try to sell holding the bonds themselves to peddle....Too much risk...Everything is locked up and done already before the call announcement whether its an investor, mutual fund company, or pension fund, etc. There is an agreed upon amount to be sold ( hence the reason why some bigger ones were partial calls), there is an agreed upon price of each bond sold, and there is an agreed upon delivery date of bonds with the cash secured prior to the execution date. Thus that is why the "wiggle room" occurs in the "intent" of call. I have been told on rare occasions the money does not clear and call of certificates is cancelled at the last second.


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Old 09-04-2016, 12:47 AM   #1178
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I think I can provide another example for comparison clarity... Take BGLEN for example... It got called and you knew it could be called as it was past its call date.. The company BGE originated the issue so it is responsible for the call. People knew this when buying the IPO. Take PJS that just got called... It was issued by Merrill Lynch. Like BGE it is the issuer, so it retains the right to call after the call date. Remember you have no direct ownership in the underlying bonds. You just own "certificates" that were issued by Merrill through the Trust. The Trust is set up to ensure no "financial hanky panky" goes on with the underlying bonds held in trust.
This allows Merrill to do what BGE does...Call when it is in their economic best interests to do it...After call date issuing brokerage has these options... 1) Do nothing 2) Patiently wait for bond appreciation to the point it feels its most profitable 3) Call issue... But they never just call it because bond is above par and try to sell holding the bonds themselves to peddle....Too much risk...Everything is locked up and done already before the call announcement whether its an investor, mutual fund company, or pension fund, etc. There is an agreed upon amount to be sold ( hence the reason why some bigger ones were partial calls), there is an agreed upon price of each bond sold, and there is an agreed upon delivery date of bonds with the cash secured prior to the execution date. Thus that is why the "wiggle room" occurs in the "intent" of call. I have been told on rare occasions the money does not clear and call of certificates is cancelled at the last second.


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Yea, I was not thinking properly when I posted before... I forgot that these issues did have a time period when they could not be called... so, yes, you are right that anything after that date is gravy....

Another good reason to not buy past call over par... unless you know you are going to get a divi soon...

I have a worksheet and I thought I put down if an issue was past call, but I just looked and I did not... so, I will be putting this down this weekend and taking a look at what I have... might have to trip a bit here and there as a few are a good amount over call price and what I paid for them...


I will give a bit of knowledge... I worked at a corp trustee for bond issues way back when.... and we did notice that the brokers pushed calling if they could lower the cost to the entity.... now, these were housing authorities.... and there were some where the call was not even close, but they still could refi, buy treasuries which the trustee would hold until the call (which for these issues were staggered)... and still save some big money... almost every issue that I had did a refi...
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Old 09-04-2016, 01:38 AM   #1179
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I actually thought I danced to the beat of my own drum when buying preferreds, but I guess I do not. Tuesday, while reading my latest Forbes copy, I read an article from Richard Lehman on income investing. He is an editor for an income investing newsletter and manages portfolios through Lehman Livian Fridson Advisors....Anyways when he invests for income for his clients portfolios he advocates buying perferreds. He also said he prefers to buy "slightly over par, past call issues". He states those issues pay higher yield do to their need to stay close to par due to call risk. He also says rarely do they get called anyways. This has basically been my style the past 3 years. This is where I got the idea to buy ALLY-A as it was on his list...Others he mentioned at the price the preferred was when he recently wrote this I will post beside it.... ALLY-A $25.26, AGO-F $25.72, GJH $10.10, JMPB $25.39, HPF ( this is a fund) $22.90.
I havent really dug into the other issues he recommended besides the Ally one.


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HPF is a perferred closed end fund by John Hancock. If you go back and look at the perferred stock it holds on their web site, guess what they are slowly being called. In fact a lot of the same ones held all of us. I have a feeling the distributions are going to get cut. I sold my 1000 shares last week after holding for about a year. Time to find something else.
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Old 09-04-2016, 08:23 AM   #1180
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The reason, I really wanted to explain it kind of thoroughly was I was the one who has recommended issues like CVB and KCC. I was looking for higher yielder anomalies that were still safer the market average. Which up to this point has been proven true and has been good to own...However, I truly believed I minimized the call risk. And issues reaching call date and past call issues have been getting called pretty furiously lately.
The PJS call sobered me up a bit on reality. And like I said they may never be called. Its just that the conditions are ripe for them to be called with the underlying bonds trading so far above par price.
I still like to find higher yielders, but from now on I will not stretch above divi above par to buy.


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