tbul@trsvax.UUCP (08/31/84)
#N:trsvax:52900017:000:1917 trsvax!tbul Aug 31 12:31:00 1984 PREFERRED STOCKS ---------------- O When you buy preferred stock, you receive a temporary increase in yield. O Should the company go bankrupt, you are ahead of the common stock holders in return of the company's assets. O There is also a preference over the common stock in relation to dividends. A preferred issue will receive dividends before the common. O Warning: there is no participation in increased earnings. The common stock may benefit but not the preferred. O There is no certainty of a capital return, as with bonds. O There is no protection against inflation. O Bottom line: DON'T BUY 'EM! Convertible preferred stocks: O Beware of buying a convertible preferred stock which acts like common stock. To determine whether the preferred acts in this way, derive the company's net worth (after all debts have been paid). Now, subtract the value of the outstanding preferred stock from this value and the remainder is the essence. Should this amount be lost by the company then the preferred stock would be imperiled. Preferreds of this type fluctuate just as wildly as the common stock. For example: net worth of company: $50 million preferred outstanding: $45 million ----------------------------------- 5 million remains to protect the fragile convertible preferred stock. If the company loses this amount, bend over and kiss your sweet ass good-bye. O The company must have a large amount of common stock outstanding. O The conversion price should be within 15% of the current market value of the common stock. If it is not, then don't buy it. O The yield on a convertible preferred should be within 1% of normal preferred stock (non-convertible preferred stock). O The company should have a good chance at growth. O The company should have a very good track record. How have earlier issues fared? O Bottom line: BUY 'EM!!