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Since you're this board's CEF expert, what are your thoughts on Cascade's recent purchases of WIW (leveraged CEF, inflation-linked securities, currently trading at a discount to NAV)?
BTW, I've been watching NCZ (leveraged CEF, high yields & convertibles, the premium has been dissipating over the last year) for several months now, but still can't make any sense of it.
I probable won't pursue either, I'm now too old and too risk adverse.
Today is Payday.
IBM pays BRK more than 103 M$, that's a dividend of $1.30 per share per quarter payable today times 79,865,115 shares as of 31Mar2015.
Mmm, dividends, sweet dividends, is there anything they can't do?
Yo, hc. My guess is that Buffy bought even more IBM yesterday. Early in the day, it traded briefly for less than 11 times estimated 2015 eps.
I still contend that paying ~$170 in 2011 was way too early. But paying ~$165 today might work out.
I do agree with your statement "... because buffett refuses to return cap to shareholders". That's a very real issue for me. WEB has just celebrated 50 years of running BRK and BRK's cumulative distributions paid to its shareholders over that 50 year period totals ... ten cents per "A" share.
I find it abhorrent, that as a co-owner of a business to be told that I am not entitled to take some profits in real time, that if I need some money I should "make my own dividend" by forfeiting some of my stake.
"Undistributed earnings reinvested in a business cannot properly be considered a second form of payment to its owners. The money thus diverted remains at risk. It may finally fail to earn any profit at all. Unless it produces dividends sometime in the future, it comes to nought."
- Reference: Williams, John Burr. Interest, Growth, and Inflation or The Contractual Savings Theory of Interest. Circa 1964-1974. Page 141.
I don't own IBM, at least not directly. But at the right price I might be tempted to take a "flyer" (no more than 5% of my portfolio) on it. On the other hand, there is no price that would tempt me to buy BRK-B ever again.
« After buffett passes , brave financial reporters will write the truth, IF, they ever understand it. »
I sincerely hope that does come to pass. Unfortunately I probably won't be around to read it.
One of my interests is the post war (1945-1963) history of "Automobiles Ettore Bugatti". I recently purchased a reading copy (collectible copies were too expensive for me) of "Bugatti by Borgeson" (1981) that addresses the very subject you are alluding to. Borgeson's book is subtitled: "The Dynamics of Mythology".
Year to date (12/31/2014 to 6/9/2015) the NAV per share has decreased by 4.2%.
Maybe not the answer, but still worth the read, in my opinion, search for the April 20, 2015 article between the guillemets:
« Gundlach junk bonds: The next financial crisis? »
Also, you'll get a better picture of how this fund makes and distributes its money over the last five years by studying page 41 (PDF page 43) of the 2/28/2015 Annual Report that is available on the AllianzGI website.
So, let's use your numbers and also assume that BRK earned & retained ~5B$ in net income during the quarter, for a total increase in book value of ~7B$. That should increase book value by about 2.9%. And, since retail is willing to pay about $1.50 for a dollar's worth of book value, in spite of the fact that WEB has repeatedly told you that he wouldn't pay a penny more than $1.20, you're hoping for a 4.3% increase in the price per share. Is that roughly right? Corrections, anyone?
Thanks, hc, I did read the article. I spent quite a bit of time on the SEC web site yesterday looking at NCZ (annual reports are form N-CSR). It's premium has fallen dramatically over the last three months ( chart it's price, NCZ, against its NAV, XNCZX). Its NAV began to fall in July 2014. It has a good 5 year history, ~11.7% IRR, but longer term, 9 years (which includes the financial crisis), not so much, ~4.1% IRR. I've never been a fan of junk (this fund includes convertibles as well) and I'm uncomfortable with leveraged CEFs (no experience) so I'll probably just pass on it in spite of the fact that it has been fun digging into it and trying to understand it. For me, junk has always been something of a bait & switch (or is it bait on a hook?). Investors are drawn in by the current high income yield, but ignore that they are also implicitly agreeing to take capital losses some time in the future as part of the package. Since inception, this fund's NAV has fallen, on average, ~5.5% per year. Leverage only increases the volatility in both directions. As always, just my opinions.
par7551, year over year, 6/16/2014 to 6/16/2015, the price per share has fallen 23% due to a contraction in the premium and a decrease in the NAV/s. Any ideas as to WHY the NAV/s has dropped 14.0% over the last year?
par7551, thank you for your reply.
Until I understand what's happening with the NAV, I have no interest in minor price movements.
A capital loss of about 5.5% per year is to be expected (see below), but a loss that is almost three times that magnitude is disturbing. NCZ's NAV/s fell from $8.42 on 6/16/2014 to $7.24 on 6/16/2015. Ultimately, the price will follow the net asset value of the portfolio.
NCZ's NAV/s has lost, on average, 5.59% per year since inception, from $14.33 on 7/31/2003, to $7.24 on 6/16/2015. The NAV is listed after every trading day around 6:30 PM. Its ticker symbol is XNCZX.
The Price DOES track the Net Asset Value. Using Yahoo's CHARTS, Interactive, plot XNCZX (the net asset value), and then request Max (to see all of the data). Next use Comparison and add NCZ (the price) to the chart. You should now see two lines that are almost superimposed upon one another. Generally speaking, NCZ (the price line) is higher than XNCZX (the NAV line) because folks foolishly pay a premium.
Plot HYG, JNK and XNCZX on a new chart and request 1 year of data.
Note that over the past year, HYG has lost 6.28%, JNK has lost 7.38% and XNCZX has lost 14.84%.
A quick look at the Portfolio composition of each of the funds over on Morningstar offers a possible explanation. Both HYG and JNK have less than 20% of their portfolios in securities rated below single B, XNCZX has 61% of their portfolio in that class. My guess is, in effort to punch up their income, NCZ has invested a substantial fraction of their portfolio in the junkiest of the junk and may have now suffered a higher default (or markdown) rate than either of the other two funds. My guess is the leverage isn't helping either. While leverage increases the return in good times, it also increases the losses in bad.
As always, just my opinion. This is pretty much new to me. I'm learning as I go.
JMO, short interest is just way too small to matter (~1 day to cover). Its at best an insignificant sideshow to the main event, the deterioration of portfolio's NAV.
Go to the Nasdaq site that comes up in the "hits list" after searching for « NCZ short interest ».
Settlement Date : 5/29/2015
Short Interest : 572,428
Avg Daily Volume : 446,358
Days To Cover : 1.282441
IMO, watching where the net asset value, XNCZX, goes (which ultimately moves the price, NCZ, in the same direction) would be far more productive.
Thank you for the kind remarks.
I am aware of the cheerleaders. It is one of the reasons why I'm here now. One of them promoted NCZ on another board last November. Not believing that "Free Lunches" exist, my curiosity was piqued, but not enough at that time to put much effort into studying where the root of his misconception lied. This is my first attempt to understand and model a leveraged CEF.
On June 10, 2015, a message posted by hirsct: "I think of my bond CEF's as if they were annuities ... ", gave me another idea on how to model NCZ. I now believe the key is to acknowledge that both the NAV and the annualized distribution will decline over time.
Trailing Twelve Month Dividends per share.
It's a joke, BRK is worth nothing to me until it begins to pay a regular dividend.
Something to think about.
If BRK paid a dividend that was 4% to 5% of book value, D/BV, and you believed (based on the growth rate and the discount rate) that an IV/D of 30 was justified, what range of IV/BV values would you expect?
1.2 to 1.5?
IV/BV = IV/D x D/BV
« Spoke with a financial professional about ncz's reasons for dropping share prices . Its late ,e.s.t, so i'll lay it out as to why ncz went down over this week end »
So, why, in the financial professional's opinion, did NCZ's price drop?
On this subject, Buffett is orders of magnitude smarter than you and I combined and HE won't pay a penny more than 1.20 X Book Value per share. What more do you need to know?
With regard to:
« IMO no formula can properly value IV. »
I agree with you, there is no formula that can properly estimate an IV for BRK for the simple reason that it is impossible to even guess at (the timing & size) of any future distributions (coupons), assuming, of course, there are any, to discount.
Here's WEB's definition of IV:
"Intrinsic value is if the company itself were a bond and you could see all the coupons printed out between now and judgment day, if you discounted those back at government bond rates since you would know the certainty, the same certainty that you would have on a government bond what the number would be."
Ref: “The Essays of Warren Buffett: Lessons for Corporate America”, published by the Cardozo Law Review, pp 752-753, excerpt from “Buffett Conversations”, which took place between October 28-29, 1996.
In response to:
« Do you remember what he said before he said he would not pay more than 1.2 X book? »
Um, was it: ''Whoop-dee-doo for my Subaru!''?
My apologies for being flippant, but I couldn't resist your setup.
OK, WEB says a lot of things. When he really, really doesn't want to answer a question he has a propensity to use non-quantitative, wishy-washy, weasel words like: "zone of reasonableness". My guess is the answer to your question was in a similar vein.