Why Preferred Stock IPO's Are Great For Your Stockbroker, Not You

Preferred Stock is a special equity security that is commonly thought of as a hybrid between an equity and debt.

Dividends are usually higher than the common shares and are senior obligations to the regular shares which means a company would have to pay the preferred shareholders before they pay the common shareholders.

In this environment of low yields on most fixed income investments, investors are flocking to preferreds in search of higher yield.

As a stockbroker, I used to love the preferred stock IPO (initial public offering).

WHY?

Because I could hide the commission, we used to tell the clients that there was no commission.  I guess technically that was true but we got paid a concession, usually 3-4% of the total invested.

And almost always the IPO would fall below the offering price to compensate for the concession.  There was a rule too that you couldn't sell your clients shares for a period of time.

My suggestion now is that if you want to buy preferred stock, go ahead and buy whatever you like in the secondary market, ie. something that has already been issued.  Stay away from preferred stock IPO's.

Investing Advice or Education

On CNBC

After you have decided you'd like to invest your hard earned money, next question is what to invest in, what to do.  You could watch CNBC all day and listen to the talking heads discuss trading but not much on investing.

Or you could call a stockbroker who is very eager to help you with your investments. Stockbrokers are only too happy to offer investing advice for a fee!

The problem with investment advice is that you will slowly become dependent.

Investment education is different.  Once you have educated yourself to become financially literate, not at a PhD level, just literate, you will have liberated yourself.

It is hard to take advantage of an educated investor.

Educating yourself is easy too and well worth the very small amount of time it takes. Read this blog and others.  Go to yahoo finance or google finance and just read.

Email me if you have any questions too.