The one eyed man in the land of the blind is king. This is certainly true in the land of the fixed income or preferred security market. Ironically, because of the relatively tiny amount of preferred shares that trade each day, volume traders, such as hedge, and mutual, funds are rarely involved in this market. Consequently, individual investors are most often selling and buying to and from other retail investors. Because I specialize in high-yield preferred securities, which make up conservatively 80% of my portfolio, and I trade from a professional platform, I have noticed, on a far too regular basis, that many of my trading counterparts are buying and selling without really fully understanding what they are doing.
I will use AHT, Ashford Hospitality, as the example. AHTPRA was issued in 2004 and paid a yearly dividend per share of 2.1375. Their Series D, paid 2.1125. Both were callable in 2013. In 2011, AHT issued a new preferred, Series E, which is callable in 2016 and pays a yearly dividend of 2.25.
To review: If each of the three were priced at $25.00, the E series would offer the best yield at that price, which would be 2.25/25= 9%. A's yield would be 2.1375/25 = 8.55%, and D's 2.1125/25= 8.45%.
However, in 2011, not long after the E series was issued, I noticed, on my trading platform, that the A series was actually priced higher than the higher yielding E series. I promptly went on a simultaneous buying and selling spree, dumping all my overpriced A's while snapping up all the E's I could get. Notice the snapshots of the sections of my spreadsheet delineating the above-mentioned trades.
Not only did I increase my yearly dividend total, I also put some cash back into my pocket from the exchange of 4 A's for 4 E's. Notice also that I hold a very large position in AHT, I also own the D series. I normally don't concentrate like this, however, I have been investing in AHT for a long time and have the ultimate confidence that this company will not go bankrupt, the only possible way I can lose. Notice I said, I can lose. I, as a rule, do not sell my preferreds. Frankly the only way I let them go is when they're called away by the issuing company, at their callable price $25.00 plus any dividend payments owed.
The lesson learned was that my counterparts, those buying my A's were, either not paying attention, or simply didn't know what they were doing. And this happens more than one would expect. Because of my near obsession with high-yield preferreds, I search them out and populate my investment platform with them, ready to pounce when the dividend yield percent I'm looking for can be purchased at an acceptable risk/reward ratio I am comfortable with.
For a sane, safe, rational, and proven way to invest, I invite you to visit:
Disclosure: I am long AHT.
Additional disclosure: More precisely, I hold several thousand AHT preferreds, currently both the D and E series. I also positions in all the companies mentioned.