I Found Another Way To Lose Trading Preferred Equities

| About: Condor Hospitality (CDOR)


I placed a low bid on SPPRO and got burned when its dividend was suspended.

It started bouncing up and down at around $15, and I had a costly brainstorm.

Supertel Hospitality re-branded itself to become Condor Hospitality Trust.

Bonanza, Condor redeem all Series A and B perferreds.

Here are the lessons learned and conclusions drawn.

This is a tale of woe that should have been a tale of profit. However, looking on the brighter side. It taught me a valuable lesson, if I'm intelligent enough to remember it and use it while making future trading decisions.

The lesson? Actually it's personal one, which applies to me and to any of you in my situation. I am not the greatest, the most knowledgeable, and certainly not smartest trader in the market or at SA. Consequently, for those like me, as I have just described, day trading, playing the ups and downs without a well-thought-out plan, is playing with fire, and more often than not destined to lose.

Play in the game you know and you have been successful at. Michael Jordan was probably the greatest basketball player in NBA history, but arrogantly decided to tackle baseball, at which he failed miserably. I'd rather be that Michael of preferreds than the Jordan of day trading.

Now to the tale of woe I promised.

It began 12/11/13, that fateful day Supertel Hospitality (SPPR) announced that they had suspended their preferred (SPPRO) dividends. I had a standing bid, at the time, to purchase 1,000 shares @ 23.65, which I believed was a low-ball offer. Sad to say, as a result of the news, my bid was accepted and SPPRO's price kept dropping until it landed, as best as I can recall, in the low $14's. In a heartbeat, I had lost approximately $9,000.

For the next six months, as I watched, SPPRO's price remained in that general area, frequently fluctuating up and down as much as $2.00 either way. It pains me to remember, but I had an epiphany — or more accurately a dumb idea. I would recover at least some of my losses by selling the ups and buying back an equal number of shares at the lows.

I succeeded a few times until I decided to do it with my entire position, which I sold at around $15, hoping to buy it back for less. Unfortunately, instead of making me a genius, the market made me an idiot. The price, as best as I can recall, spiked up to around $18.00 and hovered there for some time. At the time, I recall muttering a few epithets, and decided to accept my losses and forget about ever investing in Supertel again.

On 7/20/15 Supertel changed its name and symbol to Condor Hospitality Trust (NASDAQ:CDOR) and its preferred (SPPRO) became (CDORO). I was alerted about the change and dutifully added CDORO and CDORP, both preferreds, to my preferred page, a page I set up to track all the preferreds I was following, although not necessarily buying (you can follow the details at Quantum Online).

There it languished, with me paying little attention until a few days ago when it jumped above $29. Talk about rubbing salt in a wound I believed had healed. Guess it hadn't, since I'm crying as I'm writing. Yet on the brighter side, it perfectly demonstrates what I have been writing about, and answers several of the questions you have posted.

  • Recall that I stated that when a company is in danger of going bankrupt, and/or for whatever reason, has suspended its preferred dividend payments, the price of those preferreds will fall as low as single digits. I've written several articles mentioning several companies facing similar circumstances, to a greater or lesser degree: Navios Maritime Holdings (NYSE:NM), Safe Bulkers (NYSE:SB), Costamare (NYSE:CMRE), Global Ship Lease (NYSE:GSL), Peregrine Pharmaceuticals (NASDAQ:PPHM), and Gastar (NYSEMKT:GST). Feel free to look up these articles. Now I didn't claim they'd be wins — they might even end up losers — but I did claim that the upside was huge and that it the upside is realized more often than not, and suddenly.
  • I stated that when the offering company survived because of favorable changes in the general market, sector, or the individual company's circumstance, sufficiently that preferred investors (myself included( realized this, the price climb back to around par would happen rapidly and stunningly. And if there were several years of missed cumulative dividend payments, the price would soon exceed its issue price of $25. Well, CDORO as I write is trading at $31. Excuse me while go fetch an aspirin for my mounting headache.
  • Because of the above, I almost exclusively invest in cumulative preferreds. Had they been non-cumulative, all those missed dividends, beginning in 2014, would have been lost, never to be recovered. Yes, the price of CDORO would have risen, but not so rapidly and certainly not as high.

I rest my case. I am a dedicated preferred investor that realizes it is a relatively safe way of investing; yet in spite of that perceived safety, it's quite possible to lose as a result of circumstance or, in my case, of stupidity. Fortunately, I've won considerably more times that I've lost. That's because my one claim to fame is that I understand preferreds a whole lot better than the companies that issue them. As far as I'm concerned, all I really have to know about those companies is whether or not they will ultimately survive. If so, long-term I win, even if it takes several years.

You might ask how this article would be of benefit to you. Maybe nothing if you are one of those really smart guys, those SA contributors that are able to dig deeply into the numbers and really understand the companies they are, or intend to trade. They'll succeed or fail without my help. I say fail, potentially so, because as the old saying goes, " the market makes idiots and geniuses of us all." On some of my dumbest moves, I've made money, and I've lost on what I considered my best. But the rest of us, groping our way blindly through incomprehensible financial statements and spun conference calls, I urge that you heed my message before you jump into the deep end of the pool, still barely able to swim.

Disclosure: I am/we are long NM-H, NM-G, CMRE-A, SB-D, GSL-B, PPHMP, GST-A.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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