4 Responses to “December 1, 2020”

1. Dan Good says:

   December 2, 2020 at 1:17 am

   I’m having a little problem with Rob Carrick’s recent post on preferred shares. The investor is 60 years old and asks if having 20% of his portfolio in perpetual preferred shares makes sense? Rob concedes that preferred shares are a better bet than bonds when held for generating income. But not as a “portfolio life preserver” when the stock market turns ugly. Is that really what bonds are held for? He sights the example of the 3 months ended March 31st when bonds obviously did well at 3% and preferreds dropped 22%. He concludes that rate reset preferreds are unattractive when rates drop and perpetuals are “less touchy” but they are not to be counted on in a stock market crash. Now I hate to say this but investing in bonds when they yield .50% is never good if you can get 5% in a perpetual preferred share. Period. If/when preferred share prices drop you can simply ignore the quotes or even take advantage of the sales price. You are talking to an investor not a child. As well the chances of rates dropping even further from here is limited as they are already close to zero. So rate resets should be fine now. And yes Virginia rates can even go up. If you are talking about a permanent loss of capital that is another thing but I am sure RBC will still be on its feet or bailed out. It is literally impossible for Government of Canada bonds to do well over the next 5 years. Preferreds at a 5% yield have a huge advantage. I think Rob is doing his reader a disservice by suggesting any holding of bonds versus preferred shares. As an investor I have had up to 100% of my RRSP portfolio in Canadian preferred shares when the value is there.

2. stusclues says:

   December 2, 2020 at 11:04 am

   “If/when preferred share prices drop you can simply ignore the quotes or even take advantage of the sales price.”

   100% agree! However, mark-to-market mania makes this very hard for investors who manage their assets from their broker statements. M2M is a very important principle for the finance industry. By convincing people that they need to protect their portfolios from price-gyrations, vast numbers of products can be packaged and sold.

   Income investors – follow James’ advice and “shut up and clip your coupons”.

3. mbarbon says:

   December 2, 2020 at 10:16 pm

   Being 60 yrs old and chasing “return” is something I would not recommend. But I am not a “investment professional”

   After all, if you took the principal and simply did nothing, you would not run out of money for 20 years !!

   As can be seen from the performance of all types of investments, one may experience a 20% return in a month !!!

   Given the “non-return” on “total return of perpetual shares” for the past 5 years shows that this sector “MAY NOT” be a place to invest a large amount of your portfolio.

4. paradon says:

   December 3, 2020 at 1:25 pm

   Have to agree Stusclues. Recent resets are looking pretty good. Hard to think that 5 years from now rates will be substantially lower, in fact with many bank issues a lift is already priced in.