Price Fluctuations of Convertible Bonds and Convertible Preferred Stocks

1. The price fluctuations of convertible bonds and preferred stocks are the resultant of three different factors: (1) variations in the price of the related common stock, (2) variations in the credit standing of the company, and (3) variations in general interest rates.
2. A good many of the convertible issues have been sold by companies that have credit ratings well below the best. Some of these were badly affected by the financial squeeze in 1970.
3. As a result, convertible issues as a whole have been subjected to triply unsettling influences in recent years, and price variations have been unusually wide.
4. In the typical case, therefore, the investor would delude himself if he expected to find in convertible issues that ideal combination of the safety of a high-grade bond and price protection plus a chance to benefit from an advance in the price of the common.

Ref: Intelligent Investor by Benjamin Graham