Central Securities: Value at a Discount for a Closed-End Fund

| About: Central Securities (CET)

Central Securities Corporation is a closed-end fund trading on the NYSE under the symbol CET. It had as of December 31, 2010, in excess of $590 million in assets and has been around for a very long time. CET always trades at a substantial discount, in excess of 15% because of a concentration of assets and a substantial unrealized long term gain in its portfolio.

CET's five largest holdings are:

Plymouth Rock Company - 28.3%
Agilent Technologies (NYSE:A) - 6.4
Coherent (NASDAQ:COHR) - 6.1
Analog Devices (NYSE:ADI) - 4.3
Brady Corporation (NYSE:BRC) - 4.1

Plymouth Rock is a privately held automobile insurance company acquired in 1982 for $2.2 million and now having a carrying value of $168 million.

The cost basis for the whole portfolio is slightly more than $313 million, which they value as of December 31, 2010, at slightly less than $ 594 million.

Considering the overall longevity of the holdings, most investors are not overly concerned with the unrealized gains. Their major concern is the true value and illiquidity of the Plymouth Rock Company which is in excess of 28% of total assets.

Plymouth Rock hires Shields & Company, a respected Boston investment bank, to make an appraisal of its shares each year. In 1996 the shares were valued at $760 each and this has risen to $3628 as of 2010. Shields gives a blanket 20% discount for lack of marketability, which brings its 2010 value to $2,900 a share. CET goes even further and gives the shares a one-third liquidity discount and values them at $2,400 a share.

Additional icing is added to the cake by the fact that CET sells at a discount to its carrying value in excess of 15%. This means that when you purchase CET you get Plymouth Rock at $2,040 a share even though the shares are appraised for $3,628 a share. This is none too shabby.

Plymouth Rock has a web site and I recommend that all potential investors read the chairman's annual letter. It is obvious that Plymouth Rock is a conservative well run auto insurance carrier and the chairman is not shy about talking about what went good as well as what went bad.

The rest of CET's investments compromise a broadly diversified growth portfolio which has done fairly well over the years.

This definitely is a closed end fund worth considering for investment.

Disclosure: I am long CET.