written by reader BUYING PERSHING SQUARE HOLDINGS ON OTC

By xiexgp@gmail.com, May 18, 2015

Travis,
Can you recommend Pershing Square Holdings after the
Euronext IPO on the OTC ticker PSHXF ? It has decent Volume
and I have no other way to buy it. TD Ameritrade recognizes
PSHXF.
Peter Schelker aka THE DUTCHMAN

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Travis Johnson, Stock Gumshoe

I have bought Pershing Square Holdings both on the Euronext and OTC. I think the OTC symbol is PSHZF, not XF, but that’s probably just a typo.

The problem with trading OTC is that there is much less liquidity — sometimes only a few shares trade on a given day. That doesn’t necessarily matter that much if you’re willing to be patient and bid about what the fair price in Amsterdam is (it trades in dollars in Amsterdam, too, so it’s easy to check at PSH.AS on Yahoo Finance, or on the Euronext website), you can often get a fill right at the fair price — particularly if Amsterdam trading is open (first hour or two of trading in the morning, NY time). The problem comes if you’re ever in a bind and have to sell on a given day — you’d very likely have to take a haircut of several percent to sell in a hurry, maybe more if it happens to be a terrible day, because there isn’t a bid book out there to suck up the shares. Even in Amsterdam it’s not terribly liquid, this is not a fund people are buying to flip necessarily, but as long as you’re intending a very long term hold and are a patient buyer I don’t have a particular problem with OTC trading. Euronext is better, but the difference is slight for most small investors.

Also note, for folks who haven’t been following the discussion of Pershing Square Holdings (which I bought right after the IPO back in October, and which is still trading at a discount to NAV), that this is an overseas investment fund and will be classified as a PFIC by the IRS. That means extra recordkeeping and probably annual taxes through a QEF election, if you’re trading in a taxable account. Usually making a QEF election every year is the best course for these investments, but check with your tax advisor — you’ll have to request some basic info from Pershing each year to make that election and pay your share of the annual taxes that would be due, making this in effect more like a US mutual fund for tax purposes, where taxable income is passed through each year.

This is one of my larger fund-type investments, and I think it will be a very strong long term performer — I like it because it trades at a discount, and Ackman has a differentiated strategy and a long record of success with very few drawdowns… and because it has lower than usual hedge fund fees (1.5/16 is the max for them, but it will probably be more like 1.5/10). But Ackman also had a fantastic year last year, so who knows — maybe he’s due for a stinker.

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