Question on Closed End Funds (CEFs). Its the intelligent investor’s strategy to buy low load, low leverage CEFs at a discount to NAV. Why bother if they have historically always traded at a discount and the liquidation risk is zero? Yes, if you find a low maintenance CEF at a 20% discount to NAV its as if you bought a basket of securities at a discount. However, whats the point if that gap is never realized and you can never unlock value? Does it simply become an issue of margin of safety then?
Michael Wei: Far more important question should be the assets in the closed end funds. If you believe in value investing and the fund has a lot of overpriced assets, you should stay away regardless the discount to NAV on the fund itself.
Allen Kaplun: dont the components of the fund make up the NAV?
Michael Wei: Allen Kaplun yes, NAV is calculated from the market prices of those assets. Value investors believe that market prices of the assets are often wrong and overpriced relative to the intrinsic value.
Michael Morse: Load up what you want…then advertise it. There is a herd of no homework traders and investors just waiting for someone to SHOW THEM THE MONEY.
Stephan Heuler: Yeah, this is also a sure way to wake up the SEC and to reduce your Reputation to sub-zero instantly and for a long time.
Michael Morse: Why…the pros do it. They do it with 13G’s….lol
Jeremy Bailey: There are stories about fund managers forcing a closed end fund to liquidate and capture the value that way. Better have deep pockets if you want to try that route