On Monday, Aug. 8, the S&P 500 took an 80-point dive. That
was a buying opportunity.
Now, I don'tmean it was a buying opportunity in the traditional
"stocks rise in the long term" idea, meaning you should buy on any
Truth is, I don't know whether we've hit a bottom. We could see
even more turmoil in the weeks and months ahead. For most
securities, there is still plenty of risk.
But the buying opportunity I saw is one only seen in panics... and
even then, only in a handful of income securities. In fact, just
days ago it offered a chance to lock in an 8.7%
from the security I'm going to tell you about -- a yield 15% higher
than it is today. And that's to say nothing of the 12% capital gain
investors have seen in just five days.
Take a look:
As you can see, this high-yield opportunity happened quickly. The
security is already back to its pre-dip price levels and has
soundly beaten the S&P 500. But those who took advantage are
sitting on a double-digit gain and locked in unusually high yields.
But how could you have known it was a buying opportunity? After
all, you can see from the chart that these
were falling with the overall market. How would investors have
known what lay ahead?
Well, the high-yielding security in the chart is the
Nuveen Quality Preferred Income Fund (NYSE:
It's a closed-end fund that holds a basket of preferred stocks. In
fact, about 80% of the fund's assets are in preferreds, while the
remaining 20% are in debt securities. More than 85% of the assets
in the fund are "investment-grade quality" -- meaning they carry a
very low risk of default.
But look at what happened when there was a market panic. Skittish
investors dumped shares without regard to their safety or what they
were actually worth. So while the safe securities JTP holds were
worth one price, the market price of the fund fell with the overall
market. In this case, the shares traded at a discount of 11.5% to
the value of the fund's underlying assets on Aug. 8.
The result is clear. Once the market settled down, investors saw
the disconnect and quickly scooped up the shares -- leading to that
12% rise in the share price.
This same sort of scenario seems to play out every time there is a
panic. My colleague Carla Pasternak
recently told you
she was watching for it. We also saw it happen during the panics in
2008 and 2009, too.
Put simply, market panics usually lead to a chance to scoop up
funds for a fraction of their actual value... and lock in
higher-than-usual yields in the process.
Action to Take -->
You can watch the discounts of funds using
. Search in the top right corner using the fund's ticker symbol and
you'll be taken to a page showing the current discount.
If we see another downturn, it's where I'll be forming my shopping
The Daily Paycheck
-- Amy Calistri
P.S. -- I own JTP as part of my Daily Paycheck portfolio. It
pays monthly dividends, so it makes a great base for the portfolio
I've built to pay me every day. If you'd like to learn how you can
set up your own portfolio to pay you a dividend check every day,
you can visit this link for more information.
Disclosure: Amy Calistri and/or StreetAuthority, LLC hold a
position in JTP.
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