They can appreciate much
quicker than common shares when a rally occurs but also go to zero if the stock doesn't move enough or declines.
Generally, preferred stocks are a much safer and predictable form of
investment than common shares, but in this case it may be just as much of a gamble.
For example, if you bought preferred shares
rather than the common shares of General Motors ($ GM), you wouldn't particularly care if the company beats or misses earnings next quarter.
Preferred stocks can offer investors greater assurances
than common shares in terms of both knowing that they will receive the dividend payment and knowing what the dividend amount will be.
Preferred shares will include different
rights than common shares, such as greater upside potential and a level of downside protection for their investment.
Most preferred shares are also callable, meaning the issuer can redeem the shares at any time, so they provide investors with more
options than common shares.
Unlike stock options, warrants tend to provide an option to purchase the most recent class of shares (
rather than common shares).