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Central Securities Corp. Message Board

  • goaustin goaustin Mar 1, 2000 8:17 PM Flag

    cet popping yet again

    cet ended today by my calculations at over 39 NAV for about 23% discount. It's being managed well but boy the discount could be better.

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    • CET should only be purchased in a tax sheltered
      account. If one of the long term holdings gets purchased
      CET may have a taxable event they can not avoid.


      One reason why I like closed end funds: I think a lot
      of the money in Mutual Funds will run if there is a
      major market move down. Once a run would start it will
      feed upon itself. Open end funds will have to sell to
      honor redemption requests. Closed ends do not have to
      sell their holdings, as there are no redemption
      requests. .

    • Based on the Forbes article I mentioned, I
      believe it's an auto insurance concern based in
      Massachusetts. A search on Hoovers for "Plymouth Rock" yielded
      no information, but I've had that happen before. . .

    • One reason could be they have over 7% of their assets in a company named Plymouth Rock which is a private company. I'm a new investor, so I have no idea what this is - can anyone give a clue?

    • It seems that there could be several reasons for
      a big discount. . . do any of the possibilities
      below seem more, less, or not at all
      accurate?

      I'm trying to get a feel for buying more of this
      fund, which is near its all-time high but still trades
      at a big discount to NAV. Please note that I'm just
      throwing these reasons out for discussion -- I don't
      believe or disbelieve any of them. . .

      1) most
      buyers of investments are not aware of or are not
      considering closed-ended funds (or maybe any funds) since
      they are focused on actively trading individual
      equities
      2) buyers of closed-ended funds are more
      conservative than buyers of individual equities and are thus
      skeptical that the NAV is a true representation of the
      long-term value of the equities in CET, despite the fund's
      strong historical record
      3) the current discount is
      just a temporary anomaly; it should be taken advantage
      of since it's bound to be corrected one way or
      another
      4) buyers of closed-ended funds have forgotten the
      outstanding review this particular fund received in Forbes in
      1997 and are only focusing on funds that are currently
      receiving such reviews
      5) knowledgeable buyers are
      concerned about the very large unrealized gains in this
      fund ("Mr. Buy-and-Hold"); they are concerned that
      there could be a huge tax hit if one of the fund's
      investments were acquired

      Thanks again.

    • I have been following and compiling data on
      closed end funds since I got a computer in 1994. When I
      first started watching CET, it sold at a premium and
      had superior NAV growth. About two years ago, the
      stock started selling at a discount. It is one of the
      best closed end domestic picks. Others are ADX and
      BEM.

    • Can anyone comment generally on the historical
      discounts to NAV for this fund? It looks like the discount
      has been in the 20-25 percent range for at least the
      several weeks. However, it looks to me like the discount
      will be at least 25 percent and could climb to almost
      30 percent this week.

      How does this compare
      to historical averages?
      I understand that the
      fund has a history of buying back shares. Has there
      been any indication from management about what level
      of NAV discount is acceptable or not?

      If the
      discount gets much larger, I feel like I should find a way
      to buy more of this well-performing fund. Am I
      missing something?

      Thank you; any and all comments
      appreciated.

    • New shares don't dilute EPS in the case of CET
      because a mutual fund doesn't have EPS the way a
      commercial entity does. (I'm not considering income on its
      various security holdings, i.e., dividends and interest,
      as an analogue to EPS.) However, the new share
      option for the annual final distribution payment
      generally does modestly reduce NAV per share because they
      are issued based on the then current market price,
      which is usually below NAV. (It would obviously work in
      reverse if the market price per share was above the NAV
      per share.)

      I view this impact as a minor
      negative against the major benefit of being able to
      acquire additional CET shares at what is generally a
      significant discount to NAV. I always advise my friends who
      are CET owners (by the way, I always advise my
      friends to buy CET to begin with) to take the share
      distribtuion option unless they really need the cash income to
      live on.

      Regarding CET's periodic share
      repurchase program, with the significant current spread
      between NAV and share price, I would certainly view
      significant buy backs by the fund as a very smart thing to be
      doing, especially since CET currently has a high level
      of liquidity.

    • Additional shares dilute the earnings per share if earnings are not growing. However, CET repurchased 177,348 during 1999.

    • Don't worry, "goaustin". These things go in
      cycles. With Wil Kidd taking care of the NAV, I'm quite
      confident that the market will fix this valuation
      aberration in the not-too-distant future. In the meantime,
      I'm taking advantage of the unusual discount to add
      to my CET position. (It wasn't so, so long ago that
      the shares even sold at a slight premium to their
      NAV.)

 
CET
21.330.00(0.00%)Jun 30 4:00 PMEDT