“The Billionaires Secret” by Herbert Tabin is a great financial investment tool. The premise of the book is to explain exactly what preferred securities (or preferred shares) are. I came into this book with no prior knowledge of what a preferred share was and how it differed from a common share. I left this book and immediately jumped into buying a few preferred shares, just to get my feet wet. The author does a great job of making this into a story, more so than a textbook. I felt a “Rich Dad, Poor Dad” vibe from it. The book also does a good job of also talking about the overall stock market and how to tell a strong company from a weak company. So even if you are a brand new investor, you may be able to get started with a small position of preferred shares. With that, let’s jump into my 5 takeaways:
1) Preferred shares usually trade in denominations of $25. This was amazing for me to learn. I had always figured that they would be more expensive than common stock.
2) Preferred shares perform like a stock and a bond. Preferred shares prices go up and down with the stock market. They even trade on the stock market, however, when they are “called” or bought back by the original company, they sell at face value. This means if you buy a $25 preferred for $23, when it is called, you will get $25. So you can lock in capital gains. However, your preferred doesn’t have to be called.
3) Cumulative vs Non-Cumulative preferred shares. A cumulative preferred share will backpay you if the company misses any dividend payments. A non-cumulative one will not. Always aim to buy cumulative preferred shares.
4) Debt/Equity hierarchy. Preferred shares are higher on the debt/equity hierarchy than common stocks. This means that if the company goes belly up, preferred shareholders have a higher chance to get some of the leftover equity. However, preferred shares do not have voting rights for the company.
5) Use the ups and downs of the stock market to get a higher yield for your preferred shares. For example, if the stock market takes a huge downturn and you see preferred share IN A STRONG COMPANY, this may be a good time to buy. If the preferred share has a 6% yield when it is sold at $25, then you will get the exact same dividend when it is sold at $15. Use this math to your advantage.
The book has a lot more techniques for increasing your yield using preferred shares. I am more of a fixed-income investor than a capital gains guy, so this book really hit the mark for me. You may not be ready to jump into preferred shares, but even if you are not, I highly recommend the book. Preferred shares are kind of hard to find without searching for them, so when you do see the occasional article about them, you will want to know what the article is talking about. I highly recommend this book for any aspiring stock market investors or fixed-income gurus.
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https://www.pinterest.com/kingmarine/military-family-investing/Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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