Here Are Legendary Investor Warren Buffett’s Secret Tips on Buying and Selling Stocks Like a Pro
Warren Buffett is one of the richest men in the world. He’s currently valued at a whopping $83.2 billion placing him third in Forbes magazine’s annual list of billionaires. The 88-year-old started early on in his money-making ventures entering the stock market at the tender age of 11.
Over the decades, he would build his massive fortune through smart investments and would, later on, put up Berkshire Hathaway, a holding company through which he makes his high-stakes investments in now. Buffett made the buying and holding technique of stock investment, but a lot more can be learned from his other stock techniques.
Investing in Preferred Stocks
The billionaire’s most recent move is buying 100,000 shares of preferred stocks from the Occidental Petroleum Corporation to get an annual dividend of 8%. Preferred stocks are different from regular stocks in that the former entitles the investor to get fixed dividends over time.
As financial advisor Colin Gerrety explains, preferred stocks are kind of like a hybrid between ordinary common stocks and bonds. This kind of investment is said to be ideal for people who have both extra money to invest as well as a longer horizon for investing.
But, as with other financial decisions, experts recommend regular investors to think things through first before purchasing preferred stocks.
Benefits of Choosing Preferred Stocks
The most obvious benefit of adding preferred stocks to your investment portfolio is that they give bigger payouts. What more, Gerrety says that putting money on preferred stocks will be a safer option than doing the same thing on common stocks. However, he reminds that the safest investment option remains to be on traditional bonds. It’s worth noting though that bonds’ dividend rates aren’t as high as preferred stocks.
A lot of companies offer both preferred and common stocks options. For example, the financial services company Wells Fargo has a dividend yield of just 3.92% on its common stocks while its preferred stocks yield 7.5%. Another example is energy infrastructure company Sempra Energy which common stocks yield 2.96% while its preferred stocks dividend rate is a much higher 6.19%.
While investing in preferred stocks has its perks, it also has its disadvantages. The primary risk in this kind of investment is that it’s sensitive to changes in interest rates. Having an inverse relationship with each other, preferred stocks are better bought when interest rates are at a low.
Aside from this, it’s also important to note that investors holding this kind of stock aren’t entitled to voting rights while common stockholders are. This means that the former won’t have a say in matters such as the election of a corporation’s new board of directors.
Garrety also warns potential investors about the small market for preferred stocks at the moment. Because of this, they may not be as liquid as common stocks.
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