by Travis Johnson, Stock Gumshoe | November 17, 2023 4:00 pm
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Dear Travis, thanks for another good analytic piece. I may have asked this question before, and not really understood the answer. What is the reason that shares in a fund like Pershing or similar investment vehicle like a closed end fund trade at a discount (sometimes a very significant discount) to its holdings (assuming that its holdings are successful and continue to do well)? Surely, it is not only that investors are wary of management fees and commissions, etc. Relatedly, what are the fees that Pershing Holdings charge, and are they typical of similar investment funds? Thank you in advance for your replies.
The fees are typical for a hedge fund, I believe they’re now at 1.6% annual fee and 15-20% of profit share. Almost all closed-end funds are priced at a discount most of the time, though the discount is entirely variable — it just depends on how many people want to own shares, and how much they want to own them, which varies.
The only way to really get rid of a discount entirely is to have such great performance that people flock to the fund, which Pershing did over the past few years (didn’t work to narrow the discount, though), or to liquidate the fund and distribute the portfolio or cash to shareholders. They’re trying to nibble at the discount by performing well and buying back shares, but it hasn’t worked. And it might not ever.
I’m a bit quizzical about Buffet exiting or reducing his holdings of some of our economic bedrock companies such as JNJ, PG, UPS, GM, CVX and HPQ. I’m even more quizzical about his 3Q additions, including Sirius (SIRI) Liberty Live Group (LLYVK) and Atlanta Braves Holdings (BATRK). I’ve read that the first two of those were looking at a merger proposal, but have not seen any update on that…maybe he’s playing both sides of the table. I’ve also read that he’s a great baseball fan, so that would explain the Braves. But I has to wonder if he’s begun migrating away from the royalty-like businesses to something akin to Flight-of-the-Phoenix companies.
All of those trades were pretty completely inconsequential — he clearly sold down Chevron as he was building up Occidental, whether for diversification or just company specific reasons I don’t know, and he sold down Hewlett Packard and seems to be acknowledging that investment wasn’t likely to go anywhere, but the others were all very tiny positions, far less than 1% of the portfolio. The Braves shares he mostly got as a spinoff.
I wouldn’t read any big picture assessment into any of it, save perhaps for the fact that he trimmed stocks by 1-2% perhaps because they have to clear a higher bar now that cash earns him 5%.
It’s strange that you talk of KO as a great investment but the truth is that the product it sells is one of the most unhealthy disease producing product in the market. I would never use their product nor buy their stock at any price
Everyone’s got their own individual moral and ethical compass when it comes to investing, for sure. I don’t buy tobacco companies, for personal reasons, but I’m OK with liquor and gambling… it takes all kinds.
Travis, Thank you for this very informative article, your research and explanations. I don’t find TEQ or CHG on TD Ameritrade. Can you suggest some best ways for individuals to buy these?
You have to trade directly in Germany and Sweden to buy those particular stocks at this point, they do not have US OTC listings — I use Interactive Brokers for direct buying on overseas exchanges, personally, and I think they’re the best at that… but many brokers offer a foreign trading service.
Thank you