RE:Re re re ObscureYour post was one of the best posts that I have ever read on StockHouse.
My appreciation to you for sharing. I hope others take the time to read your post.
Your caller may not have been Buffet but the advice he gave you is exactly what Buffet would say. Every investor can benefit from reviewing the wisdom that Buffet has shared about the market over the years.
I have been sharing the benefits of a one or two investment picks vs a broad portfolio on StockHouse for years, often to derision from other posters.
When I was an analyst on Bay St. a life time ago, I learned a couple of things. One of the things is that analysts don't have nearly enough time to dedicate the effort needed really understand all of the stocks that they are required to follow.
During my time on Bay St, I got to meet most of the heavy weights at the time. They all had talent but mostly, their primary advantage was connections. They would take meetings with analysts from sell side firms to pick our brains. A side effect of the "brain picking" sessions beyond hearing our ideas was that they would often receive "insights" that might not be available to the market in general as the analysts were all competing for their business. There are rules on the street about what information can and can't be shared of course, but the real money is made from grey zone
information.
The one fund manager that impressed me the most because of the digging was Tom Stanley who operated the RESOLUTE FUND. I never invested in his fund, but you can check out his 25 principles of investing here: https://www.resolutefunds.com/way.php.
Tom would typically have about 6 to 10 stocks in his portfolio but would really zero in on one or maybe two at the most. The remainder of his portfolio would be what I call periphery interest stocks. I have enjoyed a bit of success using Tom's strategy and as mentioned above, have tried to share it here on StockHouse.
As marketsense pointed out, my "sharing" information and ideas on StockHouse is unusual as people want to keep their secrets private. The problem with sharing successful ideas, which is really just a matter of identifying temporary inefficiencies in the market, is that once the information gets out, the "loophole" will close as others attempt to adopt the strategy and eliminate the liquidity to execute.
I share on StockHouse to give back. It is not my intention to blow up "secrets" but I can see how it could happen if too many people participate.
What makes BK unique is that the "VWAP for the last 3 trading days of the month" being used as a basis for distributions is a sneaky (I wish I had thought of it) way to get investors to prolong the game.
As you mentioned in your post, the BK game has a built-in self destruct button as the payouts are egregious. Or is it? As I noted in a previous post, the over-payment of what is paid out vs what is brought in is about $2.20 per year which is unsustainable UNLESS the bank stocks have a boomer year once in awhile like they did in 2021.
Will the bank stocks have another run and if so, when? I dunno. What I do know is that the timing of BK raising the divi payouts was not a random act as the Nov 2021 announcement came sharp on the heels of a boomer year for bank stocks.
If the bank stocks can appreciate at about 11% per year on average (11% of a $20 NAV = $2.20 which covers the shortfall in payouts) the game can go on.
There is no way that banks can sustain an 11% CAGR (excluding dividends) but all it takes is a good year once in awhile to keep the power turned on for BK. Paying attention should be very important for BK investors.
Paying attention for BK.PR.A investors is not important because the over payment of the NAV is only $0.20 per yeaer from the Pref investor perspective. Banks can easily maintain a 1% CAGR.
Of course, the overpayment of the Common shares affects the Unit NAV, but it only does so until the Unit NAV hits $15 per share. As such, the BK.PR.A shares have a built-in safety net much like the emergency brakes on elevators. Even if the Unit NAV gets to $15, it would take 25 years of the $0.20 dividend over payment to put the value of the Unit NAV below $10. However, that wouldn't even be a possibility as the MINIMUM 5% payout to the Prefs would kick in.
Bottom line:
1) BK.PR.A shareholders "gonna get paid" as long as the market exists. Receiving an 8% yield of Eligible Dividends (for tax purposes) is a no-brainer as a proxy for cash.
2) The bond market is twice the size of the stock market and is where the action really happens. The SPLIT funds are designed for the Pref buyers to make outsized and virtually risk free returns while the Common buyers can make outsized returns but also take on outsized risk
3) If the market crashes like it did in the 2008 housing bubble or the 2020 covid response fraud (lets not get into this discussion), the Prefs will might once again drop by perhaps 25% but you could take the loss and use the proceeds to buy up the Commons (which will have lost 75%) as fast and as long as you can. You mentioned that you bought up the BK Common shares the last time we had a dip so you are already prepared for this opportunity.
4) Waiting on the sidelines in cash for ten years for the next crash to happen is expensive, but not as expensive if you do so in the 8% BKPR.A prefs
Once again, none of the above is investment advice. I'm just an old geezer who spends a lot of time riding bicycles and paddling kayaks.