Tag Archives: Runaway Trader

Trading Preferred Stock on Margin is a “Good Thing” (for the Runaway Trader). Even Martha Might Agree.

Your Faithful Runaway Trader Doesn’t Have the Derring do (or the need) to Reap a Fortune with this New Strategy, but the Results have been Terrific

Charlie the Runaway Trader has been trading close to the vest these past months, as well as close to home. But more about my home-bound travails later.

For those who have stuck with my reports on trading preferred stocks on margin, hahayou’ll be happy to know that I haven’t lost my tuckus and I’m eager to get out of snow-bound Minnesota with my new cash. For the naysayers who have missed a golden schadenfreudian opportunity to cluck “I told you so,” I apologize. Your day may surely come. And sooner if Kim Jong Un flexes his military muscles and sends the market into a tizzy. In the meantime, I’ll bask in the glow of several profitable months.

I launched this program about four months ago. The notion (and it was quite literally little more than that) was that you could buy (using the right online broker) preferred stocks on margin and double, triple, even quadrupled your earnings. Since preferred stock dividends average around 7 percent, doubling or trippleing could produce huge returns, if you can stomach the extra risk.

Some readers of this digital rag wondered aloud if I had lost my mind. A scattering of the preferred stock cognoscenti called my strategy “irresponsible.” Even folks I know and who regularly read this blog ignored this trading formula.

And who could blame them? Taking advantage of this trading platform calls for a time-consuming, angst-invoking upheaval to otherwise peaceful and predictable trading. You have to change brokers, since the one you’re probably using charges margin rates so high you’d think they were gun-toting members of the Mafia. You have to endure filling all those online forms, and providing personal data about your net worth, your trading experience, your SS#, your next of kin, and whether you have at least one good arm and leg available (just in case). And you probably had to move stocks and/or cash from long-standing accounts to new untried domains. And all this just to try this idea. It could hardly be worth it.

OK. So is it?

Well, I think so. Although a couple of months do not make a year or a lifetime, the results have been promising. It took a couple of months to rejigger all my accounts and buy new preferred issues, but my fledgling program produced a net gain in February over January of 1.3%. That may look like a paltry return but even before compounding, it represents an annual gain of more than 15%. Since my margin leverage was about 1:2, I would have earned but half that amount without margin (1:1) and it cost me next to nothing to double my gain.

March was even better. While the S&P and Dow were hitting all-time new highs even my stodgy old preferred stocks showed impressive gains both in dividends and capital gains. The March over February gain was 3.54%. Before compounding that represents an annual gain of more than 40%. Don’t even bother to figure my gain had I been leveraged at 1:3, 1:4, or even 1:5. It’s too huge to contemplate and I’m too chary to go there. You get the picture.

And you say you’re getting 1% on your passbook savings? Or, 7% owning without margin) preferred stocks. Well, if you’re happy with those returns, great! But I think margin trading is a smarter, waaayyy more profitable choice. I rest my case.

And Speaking of Rest

You may have wondered why, if this blog is about runaway trading, why Charlie the RT hasn’t run away—if for no other reason than to escape Minnesota’s harsh Minnesotawinter weather. Did I say “harsh”? I took this photo while tramping through the woods a couple of days ago when, ignoring Spring, we still had a foot or more of snow on the ground. What in hell am I doing here?

The fact is, I had to face up to a series of minor medical issues that kept me in so many doctors’ offices I should have changed  zip codes. But, I’m all done. (Successfully, I might add). A couple of follow-up visits and I’m out of here.

And where to? Since my Mt. Everest trek is off the table until favorable weather next fall, I’m thinking about another great train trip, this time on the Trans-Siberian railway from London through Berlin, Warsaw, and Moscow, and then across Russia ending at Vladivostok. I could extend the train trip by rolling to nearby Beijing, but I’ve already been to China. Instead, I’ll probably cop a flight to Hanoi and Bangkok, which is a trip I missed taking during my recent China jaunt.

So, while my travel plans are still a bit iffy, my trading plans are not. I’ve got some decent sell stops and market alerts to cushion the lucrative gains I’ve made. I can trade and travel without worry (or time-zone hassles) and have a healthy income to fund it. And that, my friends, is what this blog is all about.

— Charlie the RT