General American Investors: A Perennial Favorite

| About: General American (GAM)

General American Investors Company, Inc., is a closed-end fund trading on the New York Stock Exchange under the symbol GAM. It was originally launched in 1927 and has always been equity oriented. The fund is managed by Spencer Davidson, who has been with GAM since 1994. He runs GAM as if it was his own money and owns 1,350,423 (4.57%) of the common stock and 96,341 (1.27%) of the preferred. This is an investment in excess of $40,000,000.

GAM takes a rifle approach to its investment portfolio rather than using a shotgun. It has a limited diversified portfolio, which it has held for a long time.

As of December 31, 2012, the 10 largest holdings, constituting almost 40% of assets, were as follows:



Qualcomm (NASDAQ:QCOM) 4.5
Diageo (NYSE:DEO) 4.3
Costco (NASDAQ:COST) 4.1
Arch Capital (NASDAQ:ACGL) 3.8
Apple (NASDAQ:AAPL) 3.7
Nestle NSLYF.PK 3.1
Republic Services (NYSE:RSG) 2.9
Unilever (NYSE:UL) 2.9
Target (NYSE:TGT) 2.8

As of December 31, 2012, assets were $1,168,820,478 of which 20% constituted preferred stock, used as leverage. Short-term assets were 12.5% which, I suspect, was used to offset part of the leverage from the preferred shares.

As would be expected there is substantial unrealized capital gains, with cost being $656,257,940 for its common stocks as opposed to a market value of $1,046,903,132. This simply reflects a strong long-term portfolio.

This is a totally equity-based portfolio and the market has not been kind to large-cap growth stocks over the past few years. I also think that leverage was not a positive feature in recent years. Performance has been as follows:

Years Market Value Net Asset Value S & P 500
3 9.7 9.3 10.9%
5 (1.3) (0.3) 1.6
10 6.8 7.0 7.0
20 8.5 9.4 8.2
30 11.4 12.1 10.8
40 11.8 11.9 9.8
50 11.6 12.2 9.8

The five-year ratios show reasonable operating expenses, low income and modest portfolio turnover. The figures are as follows:

Operating Expenses Income Portfolio Turnover
2012 1.67% 0.74% 9.56%
2011 1.39 0.56 11.17
2010 1.54 0.66 18.09
2009 1.93 0.46 24.95
2008 0.87 1.31 25.52

GAM should be used as a proxy for the large-cap growth portion of your portfolio. It will prosper again when large-cap growth comes back in vogue. This is a good solid portfolio, which will perform over time.

As always, I have a strong preference for closed-end funds that have a long-term quality management team. GAM has a strong internal team managing the fund, and has had the same president for almost 20 years. It is selective in its buying and commits for long periods of time.

I also have a strong preference for funds selling at large discounts. GAM can now be bought, if careful, at a 15% discount. This is a large discount and partially attributed to its sharp rise in value. As the large-cap growth funds it owns rose, so did GAM. This large discount adds to the general attractiveness of GAM and is a further reason for using GAM for the large-cap growth section of your portfolio.

Disclosure: I am long GAM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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