I’m hesitant to delete this even though my question has been expertly addressed by the good folks here. Possibly, someone has more to add ….
@Ted sometimes used a black dot to throw a thread into a semi-conscious state.
Thanks for the help.
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I sold a CEF 15 days ago for $11.98 p/s
I bought it back today for $11.69 p/s - 29-cents a share cheaper.
Seemed like a good deal.
But I missed out on a (pretty standard) monthly dividend of $0.0870 per share by being out of it.
Let’s assume no fees paid.
Did I gain anything? Let’s use a
hypothetical 1,000 shares for illustrative purpose.
Thanks for any assistance to this decidedly math-challenged investor.
PS - I tried to do a simple multi-figure subtraction problem the other day on paper as first learned in 8th or 9th grade. Couldn’t do it. Gave up. Damn calculators!
Comments
Now, you have bought again for $11,690. Your gain/loss will be determined when you sell THIS lot?
1,000 shares X $11.69 = $11,690 Paid for same number of shares.
So per 1000 hypothetical shares traded the “gain” should be $290. No?
But that doesn’t take into account the lost dividend. 1,000 X $0.0870 = $87 (I think)
So … on 1,000 shares looks like a real gain of $203 if I’m doing this right.
No tax implications. It’s in a Roth IRA. To be honest, I lost about an equal amount while the money was in a different CEF. Not trying to blow my own horn … just figure this out. (The actual amount was somewhat higher than the hypothetical 1,000 shares.)
Thanks @yogibearbull for the assist. You pushed me in the direction of figuring this out, unless there’s something else I may have overlooked!
But with mutual fund, after sale, you had no exposure. With the purchase, a new gain/loss clock starts.
Holding: 1,000 shares before and after, plus an extra $87 in cash (from divs).
Sell/repurchase: 1,000 shares before and after, plus $290 in cash (as hank described)
The difference, as hank also described, is a net cash gain of $203.
There's more going on if one looks at cap gains. As yogi described, the clock gets reset if there was a gain based on the original cost of the shares. If there was a loss, it's a wash sale, no clock reset. But being in a tax-sheltered account, none of this matters.
This might make a worthwhile thread on CEFs if anyone is so inclined. I’ve for several years owned 1 or 2. I view these as a way of broadening out / diversifying a portfolio. Also, as a way of adding a little extra “octane” to total return because most employ leverage.
The way they trade drives me nuts. As @BaluBalu pointed out in another thread they are used by some as trading vehicles. And as @Mark mentioned in another thread they are largely owned by institutions. The latter fact would seem to indicate that smaller investors have a better than average chance of getting burned by these. If you think interest rates will fall, they should rise in value to the extent that they employ leverage (and falling rates = lower borrowing costs).
What are the incentives for the manager to perform well or to stick to the fund’s mandate? I’ve read that their fee is based on total amount including levered amount. OK. Mutual fund managers have an incentive to attract more investors and sell more shares and increase the funds’ AUM. But a CEF cannot issue more shares. What incentives keep the manager on the straight and narrow?
I do understand that these often trade at a discount to NAV. Is the manager’s fee based on NAV or share price? Does each have a board of directors elected by shareholders? I think so.
Why is it that the share price of so many of these drop rapidly in the first year or 2 of operation? Often they will fall 15-25% in the first year or two and then begin a slow recovery. Obviously, they don’t look like a good value when first issued. Is that just raw luck or is some other factor at work?
I'm guessing Roth as tax has already been paid.
Tanks for your time, Derf