I previewed some potential trades in our article last night. The prices changed slightly, but they didn’t move too far. Consequently, I followed through with both suggested ideas.
In this case, I have 3 investment ideas. However, all 3 involve buying the same security.
Therefore, we’ve bought the same security 3 times:
Two of the purchases were funded by selling other shares.
The final purchase was funded with cash on hand.
I picked these shares based on expected returns through mid-to-late 2024. I find the risk/reward profile looks favorable for that period. The position is expected to be relatively low on volatility (compared to the positions we closed, not compared to Treasury bills).
There are four ways I see this position playing out, though some are more likely than others:
If the market doesn’t react by the time shares are floating, I could collect the big floating dividend. That’s a pretty easy strategy. It would just involve sitting here and collecting dividends.
If the shares appreciate materially as investors look at the upcoming dividend increase, I could close out the position. Pocket the capital gain and any dividends collected in the meantime.
If shares outperform other comparable investments, whether the price goes up or down, I could swap the shares for something else. This is often how our preferred share trades work. I believe this is the most likely outcome. This is pretty similar to option 2, but it can occur whether prices go up or down. It just depends on relative performance. Given the risk/reward profile, I think “up” is more likely than down.
The economy could plunge into a massive recession, or interest rates could be slashed dramatically (or both). I think this is unlikely, but this would undermine my thesis. It’s a possibility, so I’m including it in the list. If the economy gets worse, then I’ll probably feel pretty good about moving from higher-risk shares to lower-risk shares. I believe this is the least likely outcome.
In my opinion, these trades are a slam dunk.
There are two swaps between positions and one purchase funded with cash.