5 Responses to “October 27, 2022”

1. Dan Good says:

   October 30, 2022 at 12:41 pm

   Rob Carrick just wrote an article stating “Is it time to give up on investing’s king of disappointment, preferred shares?”. You have to pay to read the article and I am too cheap but it did catch my eye. Some preferred shares are getting pretty cheap so it might be a good time to go fishing for value.

2. paradon says:

   October 30, 2022 at 8:45 pm

   You didn’t miss much. Carrick informed us that PS’s have underperformed the TSX this year.

3. RAV4guy says:

   October 30, 2022 at 10:33 pm

   This is the last paragraph of the article by Rob Carrick:

   “Prefs have paid their dividends, and you should continue to expect that if you stick to blue chip issuers. But the price moves have made owning prefs a consistently painful experience. How much can you stand?”

   I believe the article is more balanced than the headline. The article did not add to my knowledge of the preferred share subject. If it attracts some buyers, great. I also did not decrease my holdings during this down year in market prices. I have bought more in fact, but when you are already in with both feet you can only add so much. Still I am appy to receive the ongoing flow of dividends with some nice increases in payout starting to show up. “I will shut up and clip my coupons.”

4. moooooo says:

   October 31, 2022 at 6:03 pm

   Exactly, for pref share investors, more volatility means more opportunities to switch from one asset class to another, more yield over time. Let’s hope for a pref bubble soon to sell more :p

5. jiHymas says:

   October 31, 2022 at 9:20 pm

   Well, with preferred share prices having bounced just above a TXPR all-time (i.e., since June, 2007) low (barring a week or so around the COVID Crash), as discussed 2022-10-13, it’s not surprising to hear this kind of thing.

   Carrick sums it up well in his closing paragraph (as noted by RAV4guy above):

   Prefs have paid their dividends, and you should continue to expect that if you stick to blue chip issuers. But the price moves have made owning prefs a consistently painful experience. How much can you stand?

   What must be remembered is the value of liquidity. As discussed in the link:

   The spread on corporate bonds over the liquid risk-free rate (for example, government bonds) represents compensation for several different factors:

   A Expected default losses
   B Unexpected default risk, such as default and recovery rate risk
   C Mark-to-market risk, such as the risk of a fall in the market price of the bond
   D Liquidity risk, such as the risk of not finding a ready buyer at the theoretical market price.

   Investors concerned with the realisable value of their investment in the short-term require compensation for all these risks.

   However, investors who can hold bonds to maturity need compensation only for A and B. Such investors can enjoy the premiums for C and D, and we refer to these collectively as a ‘liquidity premium’.

   A & B are fundamental risks. C&D are of importance only to short-term investors (saving up to buy a house in five years?) and fools. The shibboleth that ‘risk is the standard deviation of monthly returns’ is simply a testament to the intellectual bankruptcy of the investment industry.

   I’ve made the case time and time again that fixed income investing exists on a spectrum between secuity of income and security of principal. Preferred shares (when trading at a discount) strongly emphasize the former to the inevitable detriment of the latter.

   Those who understand the above and who are looking for income will take advantage of the fact that they do not care about volatility. They’re rather fond of volatility, in fact, since it scares away the hoi polloi and boosts the liquidity premium up to dizzying heights such as those currently in effect.

   Those who do not understand the above should stick to investments they understand.