As the equity markets go bananas, I have taken to uttering ungrammatical catchphrases to justify my bias toward preferred stocks. You want risk? We got risk!
At my firm, Excelsior Capital Partners, we have an internal fund, which I refer to as our reference account. There is a substantial portion of my personal net worth tied up in the reference account.
If you want the veil lifted, with the caveat that I own every name I will mention here, let me explain how localized my money is. Our client accounts are constructed similarly, but none have the high degree of concentration of the reference account. This is a risky strategy, and one that throws off an insane amount of cash via dividends and interest payments, which I dutifully reinvest into the same securities. The power of compounding!
Thus, we have organically created a portfolio that has massive upside to par, as most of the individual securities in ExCap's reference account are trading at sizable discounts. Par is kind of an abstract concept... except when it isn't it. Especially when a company is purchased by another company. Every single issuer that we own is an absolutely viable takeover candidate, a fact we saw writ large this week when PacWest, issuer of our second -largest holding, (PACWP) , agreed to merge with Banc of California (BANC) .
Here is the lifting of the veil. Ms Guru would kill me if I lost core capital, and I will not allow that to happen. I would never disclose any client information, and dollar amounts are sacred. But, we're in businesses other than asset management, and the existence of a currently in-the-hopper transaction means I may not be able to contribute to Real Money for too much longer. Too many compliance issues. But now I will lift the veil. These are the portfolio weightings of the our reference account:
No, I have not been "putting you on" with my Real Money columns. Not only do I actually believe in these names... I own them. In size. Half of our core value is tied up in Gladstone Commercial preferreds, GOODO and GOODN. Do you believe me now when I write that I believe in this company?
The reference account has a tax structure that makes generating periodic income the most valuable strategy. With GOODO and GOODN representing half the portfolio, the reference account throws off a magnificent amount of money every month.
Again, I have to be careful not to reveal dollar amounts, but, David Gladstone, if you are reading this, please continue to make your monthly preferred dividend payments. Ha! I love that little engine that could, Gladstone Commercial, and have been nibbling my cost basis down with each monthly payment, as GOODO and GOODN have been re-priced by the markets to reflect higher interest rates.
As I keep writing... Jimmy, crack corn and don't care.
That's our All-Star Team. It is a molten lava-flowing volcano of periodic cash payment and preferreds that are trading at substantial discounts to par. Will those companies be taken over? Maybe. Maybe not. In the meantime we will continue to feast on the periodic cash flows.
Without risk, there is no reward. Fortune favors the bold. No more catchphrases, I promise. Enjoy your weekend!