As one can clearly see, the spread between preferred and common stock is declining, two days ago even delcining below 40%, to the lowest level since 23.11.2011, so almost one year.
The price level of the stock was pretty much stagnating, declining a little bit over the period.
It seems like the spread increases, when the common stock breaks out and price rises, wheras the preferreds are lower too resond and dont increase all that much.
The leads me to the conclusion that momumentum is an important factor, probably also connected with the fact that the commons are representate in the DAX30, which often gets a lot of attention from day-traders and algo-trading. Since they adjust long/short positions very frequent sensitivity should be much higher than for the preffered.
______________
Here you can find the first two parts of the series on BMW/BMW3:
Part1 and Introduction
Part 2 - Follow Up
Preferred shares do have a place in the security markets. They are not however your plain vanilla investments. They are not an equal risk substitute for investment grade bonds. Hybrid, complex financial instruments should not be sold to unsophisticated investors and should not be sold by your basic stock salespeople.
ReplyDeletepreferred share
Thanks for your comment, i hope it is not just advertising for the linked web page.
ReplyDeleteLet me at first point out that i am not attempting to sale anything here nor do i give any investment advice. Im just pointing out a -in my view- interesting valuation difference.
What you say about preferred shares is common knowledge and very well true for American style capital markets. Since BMW however is a German company their stocks constitute under German law, which defines preferred stocks very clearly.
They:
-can have voting rights, although they often do not.
-dividend must be cumulative
-priority in earnings distribution (dividend) and in case of liquidation
For further reading i recommend the Aktiengesetz (AktG).
As you see German preferred shares do resemble bonds more than average common stock.