First time poster with a question. I find myself holding a number of preferred financial stocks in my fixed income account. This account is now down close to 30%. They are big companies and, according to my adviser, will come back. In the meantime they are giving me the income I need to live on. I find myself entertaining the idea of selling these issues and eating the loss in case there is another downturn in the financials. Any thoughts?
-------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup.
You might search for an article from a few days ago on this subject, which I can't rediscover at the moment. Wasn't judgemental, but explained why financial preferreds in particular were being crushed lately. I think they said the companies weren't in trouble, but their stock values very much were due to being lower on the totem pole than financial debt. And of course preferreds get their premium by potential conversion to stock.
It's hard to say; I bailed out of PGF etf some time ago. Normally I would say you could get out now, then rejoin if a recovery came into the picture. But the problem is the recovery is likely to be a "melt up" that happens too fast to join, and proceeded by several sucker rallies.
-------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup.
Gene, I watch some of these and many been very volatile lately. Last Tuesday in particular was a type of trading day that I have seen only rarely - sort of a mini-October-1987 within a select set of securities. A few of the big bank stocks got a lot of discussion, but the preferreds took even bigger hits - I know a few that moved through price ranges of over 50% from the low on that date to the high just a day or two later. For some of them, it was on little or no news, and certainly no credit-rating downgrade. It had the appearances of "someone needing to sell," though that's just speculation.
Small trading volumes can move the price of some preferreds quite a bit. This lack of liquidity explains big price changes at times, and it only affects you if you are forced to sell into it. On the flip side, though, these are at the end of the day investments with default risk, that could become worthless or nearly so. If you focus on the highest yields, you're going to get issues with a real risk of bankruptcy or dividend suspension. And a big name might not mean much, if you're just buying, say, repackaged low-grade loans originally issued by that company (read the prospectus to research this, try
formatting link
The tricky part, of course, is figuring out the issues that are on their way to a fire sale, vs. those that are just "seeing some selling pressure" for whatever reason. You mentioned "my adviser" and this seems like a good time to use him or her as a resource. Do you have the equivalent of a junk bond portfolio, with more default risk than you're comfortable with? You hold "a number" of them...do you hold enough to help diversify against some of the risks of a fall? Is your investment in them the right percentage of the income portion of your investments?
-Tad
-------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup.
BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here.
All logos and trade names are the property of their respective owners.