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An "All-American" 9.7% Dividend Trading At A 16% Discount: (GAM)

FYI: There’s an intriguing trend showing up in second-quarter earnings. And today I’ll show you how you can jump on it with a cheap closed-end fund (CEF)—I’m talking a 16% discount here.

GENERAL AMERICAN INVESTORS was established in 1927; it hadn’t fully deployed its capital in 1929, which helped it survive. In 1931, it nearly died as the market languished. That year “was way worse than 1929,” relates Jeff Priest, a former hedge fund chief and arbitrageur who took over as manager in 2012. He is only General American’s sixth manager.

General American is another stockpicker’s fund: It has an active share of 82, and its largest 10 positions account for nearly a third of its portfolio. They include retailer TJX Co s. (TJX), reinsurer Arch Capital (ACGL), waste-services company Republic Services (RSG), Microsoft, and Nestlé (NESN.Switzerland).

Priest follows a growth-at-a-reasonable price philosophy, looking to invest for three to seven years with corporate managers who are good capital allocators. “A high- quality investment depends on how the management team generates cash and redeploys it,” says Priest, 54, who learned about capital allocation from his father, Bill Priest, the Barron’s Roundtable member who has written authoritatively about shareholder yield.

The fund yields 10%; it has repurchased shares when they trade at a discount of at least 8%. Through September, it had bought back 23.5 million common shares; there are still 27 million outstanding. It also is repurchasing preferred stock.

General American has a relatively high expense ratio of 1.2%, but it also trades at an 18% discount. As Priest describes it, “that’s almost 17 years of forward investment management costs.” Indeed, Priest himself buys shares annually “because I get to have a dollar of assets for 82 cents—a long-term compound over my lifetime and the children’s.” Priest’s family owns 149,442 shares, worth about $5 million. That discount creates opportunities for new closed-end shareholders. At the moment, says Priest, “people are excited about deregulation and lower taxes. My own feeling is we [the market] have been going along for eight years and haven’t boiled over. If you made a basic assumption that equities discount nominal gross domestic product, you have an opportunity set in front of you that is beneficial.”
( Source Barron's Article Leslie P. Norton January 7, 2017)

General American Investors Website

M* Snapshot GAM:

CEFA.Com Snapshot GAM:

CEF Connect.Com Snapshot GAM:


  • GAM's CAGR (ave annual return) since Jan 2010 is 9.89%. Vanguard's S&P fund returned a CAGR of 12.97%. So "Mikey" at Forbes has provided an "income" idea by sacrificed almost 25% of the total return by owning GAM. GAM may be a "stockpicker's" vehicle, but the stockpicker is generating negative alpha...

    Per CEFconnect, GAM distributed $2.25 during 2018. -- Or about 6.2% of GAMs price on 8/2/19. All of it paid on a single calendar day in December. Now 6.2% is a pretty good "yield", but most income-oriented investors prefer to be paid monthly, or at least quarterly. And, of that $2.25 distribution, the overwhelming amount was from L/T cap gains. L/T cap gains are not reliably predictable. And moreover, if an income investor spends those cap gains, he is "eating his seed corn". An investor in SPY could just harvest a few shares and distribute the proceeds to himself, and do better than GAM. The actual income disty was a puny $0.30. Embarrassing.

    Mikey also cites GAM as having "lower volatility". Portfoliovisualizer indicates GAM has experienced 117% of the volatility of the S&P. The same source indicates GAM had a bigger drawdown AND a worse "worst year" than the S&P.

    It appears that every material assertion which Mikey makes about GAM is factually wrong. The advice Mikey is tossing out their for public consumption is [email protected] Forbes should be sued for financial malpractice.
  • @MFO Members: A+ As the messenger I always appreciate when one of our MFO members analyzes the message, and refutes the data.
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