General American Investors: Large Cap Growth At A 16% Discount To NAV

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 |  About: General American Investors (GAM), Includes: EPHC, QCOM, TJX
by: Robert Lewis

General American Investors Company, Inc., is a closed end fund traded on the New York Stock Exchange under the symbol GAM. It was established in 1927 and invests in large cap growth company. GAM uses a rifle rather than a shotgun and so has a smaller number of securities in its portfolio than most other investment management companies that are its size.

As of December 31, 2011, GAM had net assets of $886,537,370 and has leveraged its portfolio with an additional $190,117,175. The gross assets are $1,084,081,988 with a cost basis of $777,928,855. There is substantial unrealized appreciation in the portfolio. GAM does have a small option writing program.

GAM has been selling at a discount from net asset value. On December 31, 2011 the discount was 16.4% and on December 31, 2010 it was 14.2%. The discount continues to hover in that area.

Performance over the past fifty (50) years has been as follows:

Years Percent Market Value Return Percent Net Asset Value Return Percent S & P 500 Return
3 14.6 13.9 14.1
5 (3.3) (1.9) (0.3)
10 1.6 2.5 2.9
20 8.3 8.7 7.8
30 11.4 12.1 11.0
40 12.1 12.1 9.8
50 11.2 11.5 9.2
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GAM's ten (10) largest holdings constituted 42.7% of its entire gross portfolio and are as follows:

Percent of Assets
TJX Companies 11.0
Qualcomm 4.3
Epoch Holdings 4.2
Costco 3.7
Arch Capital 3.7
Diageo PLC 3.5
Weatherford International 3.4
Apache 3.0
Republic Services 3.0
Nestle S.A. 2.9
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GAM's portfolio targets those sectors which offer promise. It is not intended to be a fully balanced and broad portfolios. The following four (4) sectors constitute the bulk of its holdings:

Sector Percent of Gross Assets
Finance and Insurance 26.4
Retail Trade 19.5
Consumer Products 14.5
Oil and Natural Gas 11.5
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GAM has moderate turnover and has maintained moderate expenses. As it invests for growth, its income has been fairly small. The following is a breakdown over the past five (5) years:

Percent Expenses to Net Assets Percent Income to Assets Percent Portfolio Turnover
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
2007 1.11 0.78 31.91
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Directors and officers as a group own 8.93% of the outstanding shares. Spencer Davidson, the long standing chief portfolio manager, owns 4.29% of the outstanding shares. They have put their money where their mouths are. They believe in their investment approach and will continue to follow it.

I also believe in GAM and think they are doing a fine job. They buy quality large cap growth companies which they follow and hold. They do not scatter their bets but focus on what they believe in. I have been watching them a long time and fully accept their philosophy and approach. It does not hurt that they also trade at a substantial discount from net asset value.

I fully believe that most investors should have GAM in their portfolio.

Disclosure: I am long GAM.