70 Out Of 70 - How To Pick Winning And Losing Preferred Stocks

I am frequently asked how investors following the preferred stock investing method described in my book, Preferred Stock Investing, have done during the Global Credit Crisis.

With Citi and Bank of America now buying back the preferred stocks that they sold to the government under last year's TARP program it seems like a good time to update a post that I made to this blog last October 27.

The Global Credit Crisis began for preferred stock investors in June 2007. While there could certainly still be more bad news, my guess is that the bankruptcy of CIT Group last month was pretty much the end of the big bloodletting.

So how did those following the preferred stock investing method described throughout Preferred Stock Investing ("CDx3 Investors") do?

Eight publicly traded Big Banks declared bankruptcy since June 2007. You can see them listed on this table. At the time of their bankruptcy, these eight banks had a total of 57 preferred stocks trading. If you owned any of these 57 preferred stocks you were wiped out, meaning that you lost your principal (not to mention all of the future dividends that you were counting on).

Of these 57 preferred stock issues, the ten preferred stock selection criteria from chapter 7 of Preferred Stock Investing (the "CDx3 Selection Criteria") filtered out all 57 of them. Those following the preferred stock investing method described throughout Preferred Stock Investing knew to avoid these 57 preferred stocks to begin with (the CDx3 Selection Criteria were originally published in October 2006).

Four additional Big Banks were facing bankruptcy but were acquired instead (National City, Countrywide, Merrill Lynch and Wachovia). Investors holding the thirteen preferred stocks issued by these four banks were saved. Not one dividend has been missed or even delayed. And the ten CDx3 Selection Criteria identified these very thirteen preferred stocks; right on the money, every time.

In 70 out of 70 cases, a 100% success rate, the ten CDx3 Selection Criteria from chapter 7 of Preferred Stock Investing filtered out the preferred stocks from the companies that would be claimed by the Global Credit Crisis and let pass those that would be saved.

In addition to the ten CDx3 Selection Criteria, Preferred Stock Investing also explains the Three Rules of Market Price Predictability that influence the market price of high quality preferred stocks at specific points in time. Throughout the Global Credit Crisis the market prices of qualifying preferred stocks behaved just as my research said they should.

Many times, what people really mean when asking how CDx3 Investors did during the Global Credit Crisis is how much money did they lose during this historic calamity.

The short answer is that not only did they not lose anything, the ten CDx3 Selection Criteria pointed preferred stock investors in the right direction 70 out of 70 times. And the Three Rules of Market Price Predictability identified the best time to buy, leaving CDx3 Investors with a preferred stock portfolio that is generating an annual dividend yield between 9% and 11%.

By knowing which issues to avoid and when to buy, the Global Credit Crisis, while tense at times, left CDx3 Investors in a much improved financial position.

In these post-crisis days, how many investment methods are able to show these kinds of results?

2010 is a new year and the first in a while that we enter without watching our Big Banks line up at the cliff's edge. Why not pick up a copy of the Third Edition of Preferred Stock Investing (click on any of the three book cover images you see at the top of this blog) and find out exactly how my research has repeatedly and with 100% success saved preferred stock investors since June 2007.

Many Happy Returns.