In the past, closed-end funds have gone to very deep discounts during steep market declines. I don't know exactly why this is. Maybe a closer look would reveal that they lag behind as the market begins to recover. In any case, there may once again come a time when one can buy things like Adams Express (ADX), Tricontinental (TY), Central Securities (CET, I think), and others at 25-40% discount from net asset value. This means at at the worst, you get dividends that are about 30% higher than owning the same stocks that are in the funds.
MKB knows all about these.
I did very well with some closed-end funds during the late 70s/early 80s.
Another advantage is they can be bought with cheap commissions from discount brokers. No load--and pretty low pmanagement fees.
I haven't studied these in a long time, and the universe of these funds is much changed and much larger than it used to be. Some are more specialized--for example, PEO is heavy on oil-related stocks.
I don't know any rule about when to start getting into the stocks. In the event of a considerable drop in the general market, one could start dollar-cost averaging, always reserving a good hunk of cash in case the market tanked enough to produce average P/Es of 8 (which seemed normal twenty years ago but now seems impossibly low.
As for me, I am too busy studying overvaluations in the present mania and will have a lot of homework to do when valuations change.
The closed-end stock funds were an awfully good thing for me. I ought to have simply put all my money in them and left it alone until now--or, given my perception of the markets, at least until the end of 1996. |
