Buffett says don’t mess with bitcoin. 2 favorite to buy instead

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Co-written with “Hidden Opportunities”

Las Vegas is a fun place. The city welcomes nearly 42 million tourists a year and a lot happens there, which makes it a must-see destination. beautiful hotels, excellent cuisine, lively nightlife, very entertaining shows and, above all, casinos.

As a business, casinos deal with these tokens or tokens instead of cash because they are easier to stack, store and count. While these tokens are interchangeable with cash at the casino (and perhaps a few businesses in gambling towns may honor them informally), make no mistake, these tokens have no practical value. When the old casino closes and a new one moves in, those old chips are interesting art.

Similarly, the financial markets have a wide range of highly speculative instruments that entice the average investor to get involved. It’s understandable. After all, the urge to partake in something resembling easy money is a basic human instinct.

“A price hike creates more buyers and people think ‘I gotta get on it’ and it’s better if they don’t get it. If you don’t get it you’re a lot more excited than if you understand it.” – Warren Buffett in 2018

The funny thing about the crypto market is that the instruments aren’t perfect, even in theory of being the technology to support decentralized finance. Because Bitcoin is fundamentally flawed, we have Ethereum. And Ethereum has scalability issues, so we have Cardano. You often hear of the founder of one crypto starting another, claiming improvements in the known challenges of the first. Today, there are nearly 23,000 cryptocurrencies with a market capitalization of +$1 trillion. They are filled with pie-in-the-sky potential described in ways beyond comprehension to the average individual with a shut up and take my money attitude. Source

CoinMarketCap

The Oracle of Omaha, who also happens to be a notable disciple of Ben Graham, the father of value investing, sees no value in Bitcoin. Despite its price hike, the Berkshire Hathaway CEO sympathizes with cryptocurrency speculators and isn’t shy about calling it a get-rich-quick scheme.

As Mr. Buffett buys hidden value and allows time to unlock the true potential of his purchases, our goals diverge a bit. We don’t invest in anything in the financial markets unless it earns our time (and our money).

Preferred securities offer reliability in today’s markets

Benjamin Graham noted that due to investor irrationality (including factors such as the inability to predict the future and stock market fluctuations), buying undervalued or undervalued securities is sure to provide a margin of safety to the investor. .

In a market where stock and bond prices have fallen in concert due to so-called interest rate risk, preferred stocks combine the best of both worlds for risk-averse investors.

Unlike bonds, most preferred stocks do not have a maturity date when the principal must be repaid. The companies that issue the preference can redeem it at any time after the issue call date. Until then, you can receive regular dividend payments.

Preferred securities are the complete opposite of speculative games, they provide a reliable and predictable stream of income and can be redeemed at a set face value (usually $25). As long as the underlying company continues to execute on its business objectives, we get paid for our patience. Eventually, as the company improves its credit rating and can borrow more cheaply, the redeemable preferred shares are redeemed at face value, and if we buy below par, we recoup upside capital.

As interest rates have risen, many preferred stocks are trading well below face value, and we are increasing our holding in this asset class. At High Dividend Opportunities, we maintain a 40% fixed income allocation. Our favorite portfolio has positions in over 45 preferred individual bonds and baby bonds, targeting an average yield of 8-9%. As Wall Street flees fixed income in this rising rate environment, we are buying with both hands for our long-term income needs.

Here are two heavily discounted high-yield favorites we’re loading into this sale.

Pick #1: SiriusPoint Preferreds – Yield 8.7%

SiriusPoint Ltd. (SPNT) is an insurer licensed to underwrite property and casualty and accident and sickness insurance and reinsurance globally. SPNT has a total capital of $2.9 billion and its operating subsidiaries have a financial strength rating of A- from AM Best, S&P and Fitch.

As talks of about 9% shareholder Dan Loeb’s privatization of SPNT gain airtime, holders of his 8% resettable fixed rate preferred stock (SPNT.PB) are concerned about abandonment of titles.

If not redeemed after its redemption date (February 2026), SPNT-B’s coupon changes to a floating rate at the 5-year US Treasury rate plus 7.298%, reset every five years. Considering that the coupon will most likely be higher than current levels (and the subsequent buying opportunity will not be until 2031), there is a higher probability that the preferred shares will be redeemed three years from now.

Author’s calculations

Since SPNT-B was issued to appease large institutional investors as part of a definitive agreement that led to the formation of SPNT, it enjoys a generous coupon of 8%; it has several structural protections and features that make it a very unique investment. 8.7% qualified return and 9% upside over this preferred option with a rate reset clause that almost guarantees redemption on the call date.

Pick #2: Necessity Retail REIT Preferreds – Yield up to 9.3%

The Necessity Retail REIT (RTL) is also called the place where America shops. This REIT has a recession-proof portfolio of primarily necessity-oriented tenants, such as discount retailers, auto repair shops, gas stations and convenience stores. RTL maintains high occupancy rates and a healthy balance sheet, ensuring adequate coverage of preferred dividends.

RTL has two classes of preferred shares with an attractive yield of 9.3% and offering up to 25% par value appreciation. The growing common dividend is a boon to investors in these cumulative preferred shares.

7.375% Series C Cumulative Redeemable Perpetual Preferred Shares (RTLPO) 7.50% Series A Cumulative Redeemable Perpetual Preferred Shares (RTLPP)

Author’s calculations

Being perpetual preferred shares, the company has no obligation to redeem these securities after the date of purchase. Given RTL’s financial situation and interest rate climate, we don’t expect RTL’s preferred shares to be called anytime soon, making them excellent buys for our long-term income needs. term.

Conclusion

As a beholder of decades of investor sentiment, Mr. Buffett has for decades watched several financial instruments disguised as assets with big promises, luring anxious people to the upside. With Bitcoin, the Oracle of Omaha simply compares them to the game he has seen throughout his life.

“Cryptocurrencies basically have no value, and they produce nothing. They don’t replicate, they can’t send you a check, they can’t do anything, and what you’re hoping for is that someone someone else comes to pay you. more money for them later, but then that person has the problem. In terms of value: zero. Warren Buffet in 2020

Don’t gamble your financial future with the promises offered by highly speculative investments. Your neighbor may have banked with Bitcoin or other cryptocurrencies, but you could lose it all when the bubble bursts into nothing.

We love dividend stocks, and both of these picks are part of our preferred stock portfolio which is +45 different solid investments. Thanks to the Hawkish Fed, there are much safer asset classes at deeply discounted prices. We think interest rates have peaked and dividend stocks, in general, are now at their lowest. As income-oriented investors, we stock up on preferred securities and will patiently wait for the upside as the interest rate cycle changes. Retire safely with up to 9.3% returns from two well-protected favourites. Now is the time to stock up on dividend stocks!

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