No. of Recommendations: 3
Cross-posted from Bond Investing; it may be more appropriate for this board. Sorry for the duplication.
Elizabeth, and other beginners,
I'm late to the party, but I may have some different ideas, and a bit on an older thought already presented here.
The older thought: you're afraid of failure, but all of us are. You're afraid of making a mistake, but all of us are. You're afraid of looking foolish, but all of us really are foolish in one or more arenas. What inspires me is that we learn the most from our mistakes and our failures. When we're successful, it's hard to tell whether it was from something we did correctly and on purpose or whether we were just lucky. When we screw up or seem to have screwed up, that's also because of something we did something or we were just unlucky. The difference is that it's easier to trace our failure/mistake to something we did and not simply bad luck than it is with our successes. Elon Musk has gotten stinking rich (an outcome to which I still aspire) by being willing to make mistakes, because that's where the data are.
And: as others have already pointed out, no one on this Board (and very few on any of the more "advanced" boards on this setup of Manlobbi's) are going to yell at you or even merely ridicule you for making a mistake; we're going to try to help you, however clumsily any of us might do so, learn from your mistake. And as another has said already, the only silly question is the one you don't ask. To which I add, ask away--you're actually helping us, too, with such questions: they make us revisit our assumptions, and they occasionally expose us to an idea or an avenue we'd not thought of.
My different idea here concerns bond and preferred stocks (which I prefer over bonds, so far) and the difference between yield and coupon. Bonds and preferreds pay a dividend periodically (usually quarterly, but some do so at other regular intervals), and in the main, they are legally committed to paying that dividend value (for instance, 50¢ per share) for the life of the instrument--until maturity for bonds, until called for preferreds. Those 50¢ compared to the market price you pay when you buy the instrument is the market yield. Those 50¢ when taken as fixed in time, which is that legal commitment made by the instrument seller when he first creates it and puts it on the market, is the coupon: the bond or the preferred have a coupon of 50¢/share. Regardless of market price from time to time, the bond or preferred will pay those 50¢ on every dividend until maturity or until called.
"Called:" when a company creates and offers for sale a preferred stock, in addition to legally committing to pay that dividend (which usually is quoted as a percentage of its par value (more on this in a bit) and that percent works out to the hard value (50¢ in the running example)), it is legally committed to do so until a named later date to which it also legally commits: the Call Date. This is the date (analogous to a bond's maturity) prior to which the company must always pay the dividend, but after which it is allowed to call the preferred stock--to buy it back whether we want to sell it or not--but it can continue the preferred if it wishes, but now subject to Call at any time the company deems useful.
"Par:" this is the initial price at which a preferred stock is first offered by the company issuing it, typically $25/share, but other initial prices are sometimes used. Coupon and Par: in our example of a preferred stock paying 50¢ every quarter, the stock pays $2 per year, and that gets cited as a coupon of 8%; you'll only rarely see a cite of $2 except in conjunction what those 8% work out to.
The importance of the par price is that when the company does call its preferred stock, it must pay the holder that par price, regardless of the then-current market price. If the market price is $20/sh when the company calls the preferred, it must pay you the $25/share par. On the other hand, if the market price when the company calls its preferred is $30/share, it still will only pay $25.
My main preference is common stocks, but I've reached an age where capital preservation and income are important along growth in value. Because of that, some of my holdings are in preferred stocks (see Quantum Online
https://www.quantumonline.com/ if you become interested; I'd hold bonds, too, were I able to get access to suitable bond databases), which I hold until they're called. I hold them until called because I want the income stream, and from that, I don't care about and I don't sweat the yield, which varies with the market price.
You're young enough that capital preservation needn't be that important (although not something to be cavalierly disregarded); you have plenty of time to recover from mistakes or market moves that go against you even though you did everything right. Still, my move to the extent preferred stocks (and bonds, should I buy any) is to hold until called/maturity rather than trying to trade them based on market price fluctuations. Lots of folks make money trading (and lose money in the attempt; common stocks are no different in that regard), but it takes more work and time than I'm willing to commit.
And now I've rattled on enough.
Rock and roll is here to stay/It will never die.Eric Hines
