Author Topic: "A Value Opportunity in Preferred Stocks"  (Read 5796 times)

stahleyp

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Re: "A Value Opportunity in Preferred Stocks"
« Reply #10 on: April 10, 2017, 09:39:46 AM »
From his latest post -Diversification, Adaptation, and Stock Market Valuation-

"Panics are less likely to be seen as reasons to panic, and more likely to be seen as opportunities to be taken advantage of. Obviously, panics will still occur, as they must, but there’s a basis for them to be less chaotic, less extreme, less destructive than they were in market antiquity."

Why have there been two major panics (biggest draw downs) since the Great Depression if "there are less likely reason to panic?"

He's also making a big assumption here: "Consequently, they’re more willing to actively step in to prevent dislocations from happening, or at least craft their policy decisions and their communications so as to avoid causing dislocations."

They have so far - but that doesn't mean that'll continue to happen. Look at the rise of populism around the world.
Paul


rockket

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Re: "A Value Opportunity in Preferred Stocks"
« Reply #11 on: April 12, 2017, 09:09:24 AM »
From Bogleheads:

Quote
1. Wells Fargo 30 year bonds yield 4.6%
2. 30 year treasuries yield 3.06%
3. Thus, Wells Fargo spread to treasuries is 1.5%
4. Recovery rates on corporate debt are about 50%. What this means is that on the average, if a company goes bankrupt and you are a bond holder, you receive approximately 50 cents on the dollar. Lehman bondholders only received 30% so perhaps we can look on that as a worst case.
5. Preferred shareholders will get nothing in bankruptcy. They are below bondholders in the capital structure and it is rare for bondholders to recover 100%.
6. Twice the capital at risk roughly means twice the spread, so I'd look to get 6.14% on a 30 year preferred.

Does anyone know what historical recovery rates have been for subordinate bonds in the financial sector?

Also, that logic seems to ignore the tax advantage of qualified dividends vs coupon payments

Liberty

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Re: "A Value Opportunity in Preferred Stocks"
« Reply #12 on: January 16, 2018, 10:18:27 AM »
New post by the same author (different topic, but didn't want to start a new thread):

www.philosophicaleconomics.com/2018/01/future-u-s-equity-returns-a-best-case-upper-limit/
"Most haystacks don't even have a needle." |  I'm on Twitter  | Interesting podcast on aging research

matthylland

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Re: "A Value Opportunity in Preferred Stocks"
« Reply #13 on: January 17, 2018, 05:24:23 PM »
Both issues are down $70-$90 from highs as rates have risen. Back under $1300 conversion value (though since that is likely a ways off, I doubt it would matter much in long term total returns).

I have been close to pulling the trigger on these for a while. Thinking a little harder now.