Taking A Second Bite Of The Apple

During the 2008 market collapse, the value of my portfolio had declined by over $650,000.00 by early March 2009. I had learned my first costly lesson about dividend investing in common stocks. Dividend payments are not set in stone, and in a declining market, they are likely to be cut or even eliminated. Furthermore, I realized that many companies had reduced their dividend payments just enough to maintain their promised high yield returns, enough to attract additional unwary and unsophisticated investors. Although to be fair, I'm certain that during that time a majority of the companies I had invested in were seriously over-leveraged and needed to retain as much capital as possible to avoid bankruptcy.

At the time I also learned I was not as smart as I believed I was. This came as a rude awakening at the beginning of 2009 when I still believed I was intelligent enough to dig down into the numbers and really understand a company's financial statements—well enough at least to figure out how well they were actually performing. Sadly, to my chagrin, I couldn't. And after spending untold hours listening to a variety of conference calls, it dawned on me that they were, more often than not, spun to make bad seem good and down, up. Around that time, I also discovered Seeking Alpha and began reading its contributor's articles to help me make sense of all the information I was trying to absorb. However, no matter how intelligently each article seemed to be written and constructed, I often found the comments of other SA participants contradictory and, what appeared to me, to be equally well represented. Furthermore, I didn't have a clue as to which side of each argument I should believe. I realized I simply didn't have sufficient knowledge or information to decide. And that's when I knew that I should either exit the market or discover a way for an investor, such as I, possessing limited knowledge could ultimately succeed and prosper.

It was at this time that I learned about preferred shares and fixed income investing. I also discovered that most of the companies I had invested in also issued preferred shares whose prices had similarly been depressed by the deep recession we were struggling through. Many preferred shares, which had been issued at $25.00, were now trading at astonishingly low prices of between three and six dollars. Upon further research, I learned about cumulative preferreds, and amazingly most of the preferreds that interested me paid cumulatively. I also realized that short of bankruptcy, I was guaranteed their full issue value of $25.00, if and when they were called. More importantly, as far as I was concerned, the dividend, even if suspended, was guaranteed to be paid in full if and when the issuing company recovered and reinstated its preferred dividend payments, which had to be brought current before the common shareholders would be allowed to receive even one penny of dividends. I also learned that each preferred prospectus contained a variety of sanctions that remained in effect as long as these cumulative dividends remained unpaid. Consequently, it was in the issuing company’s interests to become current in the shortest possible time. I recognized this once-in-a-lifetime opportunity, took a deep breath, and started buying.

Exactly one year later, March 2010, I had converted an approximate $650,000.00 loss to an approximate $600,000.00 gain; a remarkable turnaround, and an unrealized profit of $1.25 million for the year. At the time I believed that I'd not be given another opportunity to be able to repeat this feat.  I was wrong. I believe COVID-19 and the way it has been mishandled thus far by the Trump administration will allow me a second chance bite of that very tasty investment apple.

Self-satisfied and proud of my accomplishment, I initially wrote about it and quickly became a much followed and respected contributor to Seeking Alpha, a market investment platform. This led me to write and e-publish The Art & Science Of Preferred Dividend Investing. With the knowledge contained within, which is easily understood, you too can safely reap the rewards of the market rebound, which I predict will begin to happen with a change in administration as it did in 2009.