There is nothing worse than a company that has “preferred shares.”

Ask yourself this question: “Why does a company have preferred shares?”

Here is your answer: “So those holding the preferred shares never lose control of the company even as they issue more and more shares.”

IT’A ALL ABOUT DILUTION!

Get that? They can dilute the shares to no end and profit from it, and then grab it all back and take control again (and again, and again). When you read those 10Q’s and 10K’s, look for the preferred shares. With companies that are not fully reporting, you have to dig a little deeper. Go back to filings from two, three, maybe even five years ago. As you look up the symbol, you can find old filings that may be under a different name. Those old filings with the SEC will show you if the company has had preferred shares issued. Preferred shares – like new kinds of taxes – basically never go away.  Once preferred shares are created, they keep them alive as a way to keep control.

Up Next Number Two: The People