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Author: opentolearn Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35342  
Subject: Looking at my portfolio Date: 8/21/2002 3:34 PM
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What do you think of Preferred Stocks? What are the risks/rewards.
I asked this earlier. How do you as individuals buy individual bonds and get a selection and reasonable price. I was at Schwab today, where I have an account. They have an inventory of bonds. Do Brokerages differ inasmuch as their inventory selection? Is it better to go to a more traditional brokerage company?
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Author: Crosenfield Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4420 of 35342
Subject: Re: Looking at my portfolio Date: 8/21/2002 4:10 PM
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Schwab and the big brokerages maintain bond inventories. When you buy from inventory, the price quoted is net of commissions. If you had accounts also at Prudential, Merrill Lynch and Bear Stearns, each would hold a different inventory. There might be some duplication, particularly with more actively traded issues.
For bonds traded on an exchange, you can order your broker to buy the bond for you on the exchange (even though they have it in inventory) and probably, after paying the commission, you will get a slightly lower price. The difference is markup.
For bonds not traded on an exchange, as for example if you would like to buy a certain municipal bond, you do not know what the markup and commission are unless your broker is willing to tell you--probably he/she won't. You buy on the basis of whether the yield to maturity and the call provisions quoted are acceptable to you. You do not buy a bond with the intention of selling it next week unless you REALLY think there is going to be a dramatic price change, news coming out, something of that sort. A bond is something you own, not something you trade. The retail customer should figure on holding to maturity--or until it is called away.

The other part of your question is about preferred stocks. In this era of low bond yields I've swung in that direction. The better REITs have preferreds that I think will indeed pay their dividends for several years to come and then call in the preferreds at the price stipulated in the prospectus--usually $25. Most preferreds are issued giving the company the right to call them in in 5 years, so if you are paying a premium you need to be careful of when the preferred was issued and when it can be called. If you are buying at less than the call price this isn't a big issue.
Best wishes, Chris

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Author: opentolearn Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4422 of 35342
Subject: Re: Looking at my portfolio Date: 8/21/2002 5:46 PM
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Chris, thank you so much for the information. I am intending to hold them. We have quite a bit of cash, mostly in my husband's IRA. He must now take distributions. So I'm deciding what makes the most sense. I put quite a bit in very very short term Treasuries, so I can decide what to do. I thank you for the information on Preferred Stocks that was so helpful.

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Author: Crosenfield Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4424 of 35342
Subject: Re: Looking at my portfolio Date: 8/21/2002 6:31 PM
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The preferreds I've bought in the last couple years have mostly, but not all, been bought as new issues. My Merrill Lynch broker says "no commission" which means I get the preferred at the offering price of $25 a share, no "extras".
Now, to buy a closed end mutual fund at the new issue price is a sucker's deal--most closed end mutual funds start trading at a discount very soon. The problem is that the costs of bringing the mutual fund to market are subtracted from the net asset value, so if you pay $10 a share for a closed end fund at issue, it probably contains $9.50 or so of net asset value and then will trade at a discount from that of maybe 4% depending on the popularilty of the holdings. Your broker's commission is included in the difference between initial offering price and net asset value.

With a preferred, the costs of bringing the issue to market are paid by the corporation that issues the preferred. (In deference to recent discussion, I note that I am including a REIT in "corporation". You can make the point that it isn't. That isn't what this post is about.) So you buy at $25 net and in a week or so after issue may note that your preferred is selling at $25.07, which happened with the last preferred I bought. Now, if I were to sell it I'd have to pay a commission, but I bought it for the yield, which in my opinion is secure.

I maintain an account with Merrill Lynch for buying and holding corporate and municipal bonds, and preferred stocks. My stock trading is with Brown & Co. I don't buy bonds or preferreds from Brown. There is no law that says you can only have one account. My Merrill Lynch broker suggests preferreds being brought to market by Merrill Lynch, of course. Overall, this has been a good arrangement and I've been pleased.
Best wishes, Chris

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