Saturday, June 20, 2015
Tonight's reading: Burton G. Malkiel, The Persistence and Predictability of Closed-End Fund Discounts
Canadian Closed-End Funds Monitor, June 2015

(aka rummaging through the Thunderbird Marina dumpster, c. 1983)


"As they are exchange-traded, the price of CEFs will be different from the NAV - an effect known as the closed-end fund puzzle. In particular, fund shares often trade at what look to be irrational prices because secondary market prices are often very much out of line with underlying portfolio values. A CEF can trade at a premium at some times, and a discount at other times. For example, Morgan Stanley Eastern Europe Fund (RNE) on the NYSE was trading at a premium of 39% in May 2006 and at a discount of 6% in October 2006. These huge swings are difficult to explain.

US and other closed-end stock funds often have share prices that are 5% or more below the NAV. That is, if a fund has 10 million shares outstanding and its portfolio is worth $200 million, then each share represents a claim on assets worth $20 and you might expect that the market price of the fund's shares on the secondary market would be around $20 but that is typically not the case. The shares may trade for only $19 or even only $17, i.e., a 5% or 15% discount to NAV.

The existence of discounts is puzzling since if a fund is trading at a discount, and if permitted by the rules or constitution of the fund, theoretically a well-capitalized investor could come along and buy up enough of the fund's shares at the discounted price to gain control of the company and force the fund managers to liquidate the portfolio at its (higher) market value (although in reality, liquidity issues may make this difficult since the bid–offer spread will drastically widen as fewer and fewer shares are available in the market). Benjamin Graham claimed that an investor can hardly go wrong by buying such a fund with a 15% discount. However, the opposing view is that the fund may not liquidate in your timeframe and you may be forced to sell at an even worse discount; in any case, in the meantime the fund will have incurred costs and charges imposed by the managers. But like any investment, these discounts could simply represent the assessment of the marketplace that the investments in the fund may lose value.

Even stranger, funds very often trade at a substantial premium to NAV. Some of these premiums are extreme, with premiums of several hundred percent having been seen on occasion. Why anyone would pay $30 per share for a fund whose portfolio value per share is only $10 is not well understood, although irrational exuberance has been mentioned. One theory is that if the fund has a strong track record of performance, investors may speculate that the outperformance is due to good investment choices by the fund managers and that the fund managers will continue to make good choices in the future. Thus the premium represents the ability to instantly participate in the fruits of the fund manager's decisions."

ACT (Aesthetically Claimed Thing): this beautiful album, on this morning at the cafe
Friday, June 19, 2015
This album contains photos of Vice President Cheney with David Addington in meetings at the White House, United States Naval Observatory, aboard Marine Two and Air Force Two, and on official foreign visits to Tokyo, Japan and Sydney, Australia. This album also contains photos of Vice President Cheney and/or David Addington meeting with other White House staff members. There are a few photos of David Addington by himself.

A great, if wholly unintentional, work of political conceptual art.
Thursday, June 18, 2015

Jack Shadbolt, Creature (Beast 1), 1987
Wednesday, June 17, 2015

"Given their backgrounds as investors in hundreds of public companies, they set out to build a company that could be a template for all businesses in terms of corporate governance and transparency. The Company was listed in February of 2011 and has grown to own some of the most desirable property in Ulaanbaatar, Mongolia."

Lewis on Michael Burry: "His mind had no temperate zone: He was either obsessed by a subject or not interested in it at all. There was an obvious downside to this quality -- he had more trouble than most faking interest in other people's concerns and hobbies, for instance -- but an upside too. Even as a small child he had a fantastic ability to focus and learn, with or without teachers."

This excellent book -- which I'm rereading for the sixth or seventh time, as inoculation against the likelihood of being more wrong than right in an investment operation not under discussion here -- describes my personality more accurately than anything else I know.
Monday, June 15, 2015

"Some of what we learned was pretty weird: Men who look away and don’t smile do better than those who do; women holding animals don’t do well, but men holding animals do. Men did better when shown engaging in an interesting activity."

"Chihiro also stands outside societal boundaries in the supernatural setting. The use of the word kamikakushi (literally 'hidden by gods') within the Japanese title, and its associated folklore, reinforces this liminal passage: "'Kamikakushi' is a verdict of 'social death' in this world, and coming back to this world from Kamikakushi meant 'social resurrection.'""

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