To be a successful preferred investor, it's necessary to begin to view the market and individual companies from an entirely different perspective. What you have previously considered good might no longer be necessarily so. Conversely, what might be considered bad for the common shareholder, the preferred shareholder might, on occasion, consider a good opportunity. General market volatility and those periodic dreaded market corrections can be an opportune moment to begin buying.

The long-term cumulative preferred investor that understands the intricacies of preferred investing realizes that in the rare instances he can ultimately lose is when the equity-issuing company goes bankrupt, suspends its preferred dividends indefinitely, or the particular investor, for a variety of reasons, might be forced to sell his position at an inopportune moment: When he was heavily leveraged and suffered a margin call, thereby being forced to sell, or have his positions liquidated; most probably at the worst time when prices are severely depressed.

Most unnecessarily lose as a result of panic selling when the contracting market's fall seems as if it will never end or when the common shares of the company he's invested in continue to fall, signaling the company might be facing an existential threat. Some investors find themselves in need of ready funds to pay unexpected or upcoming bills and are forced to liquidate a portion in their portfolio to cover those expenses. When the investor ultimately sells, accepting the loss after he's suffered emotional exhaustion as a result of the continued and agonizing share price drop, and/or after a time, he's decided the issuing company recovery still remains uncertain, and he is simply no longer prepared to wait for something he feels, might never occur.

Normally, short-term individual stock price fluctuation and general market volatility need not overly concern the preferred investor, except when the possibility of an existential threat to the particular company actually exists. More often than not, general market volatility might be the best time to go bargain hunting for a company's preferred shares you've been interested in obtaining, but they never quite fell to the price you were willing to pay for them. Those preferred shares, in all probability, will rebound to a price close to par value when the general market settles, and/or the particular company fortunes begin to stabilize.

As a rule, buying during general market corrections is most advantageous because general market conditions are rarely a reflection of an individual company's health. Of course, there are instances when a company's fragile health might reach a heightened risk during a moderate or severe downturn, which might ultimately cause it to go bankrupt. Therefore, careful due diligence is a must prior to purchasing preferred equities under any circumstance. This is especially necessary for knowledgeable preferred investors who are usually yield conscious and eager to purchase depressed priced preferred shares sporting abnormally high yields, which are naturally a higher risk investment. During my time as a financial media contributor, I discovered that the vast majority of contributor articles were written for and from the perspective of the common rather than the preferred shareholder. And more than a few less savvy preferred investors fell victim to this pervasive perspective, resulting in lost buying opportunities and the premature selling of valuable positions.

For the most part, then and now, the typical financial media contributor writes about short and medium-term price fluctuations based on quarterly financial reports and whether or not a particular company met its projected guidance; or how it performed in relation to its previous quarter or year's financial report. Additionally, those articles concerning dividends are similarly written from the perspective of the common shareholder concentrating on whether or not the distributions are sustainable. This is understandably important for the common shareholder, but not terribly important for his preferred shareholding brother, especially if those preferred shares are cumulative. Unless the issuing company faces a severe crisis and potential existential threat, the possibility of a dividend cut is impossible and suspension unlikely. Consequently, while the common shareholder frets over the fact that his dividends might be cut or discontinued, the preferred shareholder can relax while he continues to receive those monthly or quarterly fixed-dividend distributions.

The main purpose and intent of this article is to demonstrate that the savvy preferred investor must view company information from an entirely different perspective. I stress this because, more often than not, what is perceived as good or bad from the common shareholder's perspective is not necessarily the same for the preferred shareholder. Below are some reasons for this:

1. The board might decide to issue millions of additional common shares, which will effectively dilute the existing common shareholder's position. If dividends are distributed, each common shareholder will now receive a smaller slice of the dividend pie; consequently, he faces the possibility of a dividend reduction. The preferred shareholder's dividend is unaffected because it's fixed. In fact, a company's decision to issue additional common shares is often viewed as a positive from the preferred shareholder's perspective because the funds received from the proceeds of the newly issued common shares will in all probability strengthen the company, while it will dilute the common shareholder, as explained above.
2. When the board decides to cut or suspend the common shareholder's dividend, it's often to the detriment of the common shareholder, but good for the preferred shareholder who now knows that the company has additional funds necessary to continue making his preferred payments. And although they might also be suspended sometime in the future, if they are cumulative, they are still owed the preferred shareholder and must be repaid in full before the common shareholder can begin collecting dividends again.
3. When a sound company's common share price is hit by market volatility, it is short-term bad for the common shareholder, yet possibly good for the preferred shareholder who, as I mentioned above, might decide to go on a shopping spree. I chronicled this in my book, The Art & Science of Preferred Dividend Investing: Below is an excerpt from the chapter detailing how  I became a dividend investor.

It was at this time that I learned about preferreds and fixed income investing. I also discovered that most of the companies I had invested in also issued preferreds 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 dollars for the year. Will I be able to repeat this feat? I doubt it.

As I mentioned, I took advantage of what I still believe is that once-in-a-lifetime opportunity. From that moment on I determined that, regardless of market conditions, a major portion of my portfolio would be invested in a variety of preferreds covering a variety of sectors, all offering a modicum of safety and my desired dividend yield. With preferreds I realized that all I had to do was determine whether or not a company It was at this time that I learned about preferreds and fixed income investing. I also discovered that most of the companies I had invested in also issued preferreds 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 dollars for the year. Will I be able to repeat this feat? I doubt it. As I mentioned, I took advantage of what I still believe is that once-in-a-lifetime opportunity. From that moment on I determined that, regardless of market conditions, a major portion of my portfolio would be invested in a variety of preferreds covering a variety of sectors, all offering a modicum of safety and my desired dividend yield.