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Posted by Gene Fowler on July 22, 2008, 5:09 am
Hi,
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?
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Posted by dumbstruck on July 22, 2008, 8:44 am
> 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?
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.
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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
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Posted by Tad Borek on July 22, 2008, 5:52 pm
Gene Fowler wrote:
> 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
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 www.quantumonline.com)
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
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Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
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