by Fred Fuld III
It is actually possible to buy stocks at a discount to their current trading prices. Here is how you can do it.
You can invest in closed end funds, also known as CEFs, that are trading at a discount to Net Asset Value, also known as NAV. The NAV is similar to the book value of stocks. In other words the NAV is calculated by adding up the value of all the stocks in the portfolio, and dividing that amount by the number of outstanding shares.
A closed end fund is similar to a regular mutual fund except that they trade throughout the day while the market is open and the trading price of the CEFs can fluctuate way above or way below the NAV. In addition, the number of shares is fixed. There are many closed end funds that are trading at a discount of over 10% of their net asset value. Many investors invest in these discounted CEFs in the hopes that the gap between NAV and price per share will eventually narrow.
One other advantage is that some of these CEFs pay a dividend, so that you can receive income while waiting for the gap to close.
Sometimes activist shareholders buy up a large amount of shares of heavily discounted CEFs and force the liquidation of those CEFs, in order to realize the net asset value.
Here are some examples with discounts ranging from 12% to 38%.
| CEF | Symbol | Discount | Yield | Dividend |
| Foxby | FXBY | -38% | 0.5% | Annually |
| Herzfeld Carribean Basin | CUBA | -26% | 16.7% | Quarterly |
| Central Securities | CET | -18% | 1.4% | Semi-Annually |
| General American Investors | GAM | -18% | 1.1% | Annually |
| Eagle Capital Growth | GRF | -17% | 7.7% | Annually |
| Boulder Growth & Income | BIF | -16% | 4.0% | Quarterly |
| Royce Micro-Cap Trust | RMT | -16% | 7.4% | Quarterly |
| Miller/Howard High Income Equity | HIE | -14% | 7.2% | Monthly |
| Adams Diversified Equity | ADX | -14% | 1.2% | Quarterly |
| Sprott Focus Trust | FUND | -14% | 6.8% | Quarterly |
| Gabelli Dividend & Income | GDV | -13% | 6.8% | Monthly |
| Royce Value Trust | RVT | -13% | 7.5% | Quarterly |
You should be aware that there are several risks with investing in discounted CEFs. First, the gap may exist for a long time, and can even widen. Second, the gap could theoretically narrow but the stocks in the portfolio could drop, so the fund would drop in price also. Third, many CEFs hold illiquid, private, or non-trading stocks, and the NAV is based on how the company valuates those shares, which may be a much higher value than what they could get if they tried to liquidate those stocks. Plus, some funds may own real estate or mortgages, which are very hard to value.
Before investing in any of these, check out the web site of the CEFs to see what stocks they own, and how many are invested in illiquid shares.
Maybe you can find some bargains with closed end funds.
Disclosure: Author did not own any of the above at the time the article was written.
