Neil Harkins

Three CEFs Offering Assets on the Cheap

In answer to Jonathan, above: Buying and holding stocks or funds concentrated in any volatile market merely allows you to watch the ups and downs of the issues, as they bob on the surface of a tempestuous sea. I have actively traded CAF since May, 2007, experiencing more than a 100 percent profit by selling and buying it back a few times; you have to play the volatility of issues such as CAF in order to make substantial gains. On the other hand, just allowing LDF (Latin America Discovery Fund) to "cook" without trading during the same time period, has returned more than 50% in its appreciation, and in the enormous dividends it has paid.

But, you must ask yourself, "What is the true value of a stock or fund, or anything else, for that matter?"; it may have some verifiable intrinsic financial basis, that the majority of people may never know, but you can be sure that the "price" is what we all get to pay, and oftentimes the "price" (governed very often by hype and other questionable influences) has very little to do with the "value". Not to sound overly metaphysical, but we value and price assets (intrinsic and otherwise) in the United States in U.S. Dollars, but what is a U.S. Dollar worth? We don't know that, so how can we be expected to know the "value" of things denominated in it? I wager that the "value" of a piece of bread and a glass of water in the middle of the desert, after you have been forced to "fast" for a week, is worth all the gold bars you have in your backpack; back at the oasis, the price is far less.

The bottom line: It really does not matter much whether a Closed-End Fund is trading at a discount or a premium to its Net Asset Value, because it is all a matter of what you and others are willing to pay for the shares, and that attitude can turn on a dime (see MXE between July and September, 2007); the fund's price in relation to the prices of the fund's underlying stocks is just a talking point, but also throws a little mystery into the equation... your profit or loss will still be governed by the difference between what you paid and what you received when you liquidated. You have to pay attention to the Market sentiment for whatever issue you own, and attempt to trade it in whatever range it currently fluctuates. Of course, if the CEF was trading at a nice discount, and the fund was suddenly "Open-Ended" by management, then the price of the shares would instantly equal the price of the NAV, and that might give you cause for celebration, even with a Dollar in as deplorable state as it is today.