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Subject:  Re: QTS-B convertible Date:  4/26/2019  2:48 PM
Author:  JimLuckett Number:  84696 of 86785

All preferreds are in danger of being Waldenized. So let's put aside that concern when comparing one to another.

The question is whether to buy the common, the straight preferred, or the convertible. Let's look at 3 possible states of the world -- "A" being disaster, "B" being bad economy but company limps along, and "C" being happy days:

A) If the company goes belly up, they're all in trouble, though the two preferreds might fare better than the common, with the straight preferred having a slight edge because it is not above par and the convertible is. So rank them straight first, convertible a close second, common third in the belly-up scenario.

B) If the economy tanks but the company scrapes along (a likely scenario sooner or later), the common plummets (maybe with a reduced dividend), interest rates fall so the straight preferred gets called, and the convertible becomes a busted convertible and is one of the best performing holdings in your whole portfolio of long positions, paying you 5.9% on cost in a world where 5.9% yields cannot be bought at reasonable risk. Rank them Convertible preferred first, straight preferred second, common a distant third in this scenario.

C) It the economy continues okay or great and the company continues its fast growth (another likely scenario given how hot data centers are), then the common soars, the convertible rises by 20 - 50% and you get 5.9% on cost along the way. Then there is a forced conversion and you cry all the way to the bank. The straight preferred just keeps doing what it has been doing -- paying its fixed dividend and gyrating inversely with interest rates. It responds to the company's good fortunes only a little, reflecting improved credit quality. Rank them common first, convertible second, straight preferred a distant third in this scenario.

I look at these 3 and I say buy the convertible, given my goals (reasonably safe income and a shot at a jackpot). I've done this multiple times over the last 20 years and have liked the results. I've lived through B & C and been very happy to have made the best choice when B prevailed and didn't waste much effort on regret when C prevailed, because I had a jackpot, just not as big of a one as if I had bought the common. Never wished I'd bought the straight preferred when a convertible was available.
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