Roaming Returns

016 - Reduce Share Dilution And Buy Back Manipulation With Close Ended Funds

October 24, 2023 Tim & Carmela Episode 16
Roaming Returns
016 - Reduce Share Dilution And Buy Back Manipulation With Close Ended Funds
Show Notes Transcript Chapter Markers

Close Ended Funds are unique in that they generally have a capped number of shares which makes their price rely completely on demand. Whereas other funds use tactics to manipulate price like offering new shares or doing buy-backs. 

CEFs have a NAV price that makes them very easy to determine their value. That means you shouldn't have trouble determining when to buy them at a discount. 

Since there are 466 total CEFs, you need a way to screen out the crappy ones. We cover the metrics we screen for to reduce the risks that come along with owning this type of asset.

High leverage CEFs like PGP is one of the biggest things to avoid when considering an fund.

These are 2 really good sites to help you find the information you need.

CEF Connect
Stock Market MBA

Tickers discussed were:
- CLF 
- CRM
- FDEU - blue chips in Europe 7% yield
- ECC - 27% yield
- IFN - Indian CEF 
- Almost anything PIMCO (ex: PDO & PDI)

BITF - Bitfarm fund we discussed throwing $100 in that does Bitcoin farming

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Ticker metrics change as markets and companies change, so always do your own research. The content in this podcast is based on personal experience and is for educational purposes, not financial advice. See full disclaimer here.

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Welcome to Roaming Returns, a podcast about generating a passive income through investing so that you don't have to wait till retirement to live your passions. 

In today's episode, we're going to talk about a type of fund that most people probably don't know about, and why it's differentiated compared to others. If you're not invested in these, you're missing out. In fact, some investors invest their entire portfolio in them. We wouldn't go that far, but you should definitely have a portion of your portfolio allocated to these things. And here we go. Welcome back, everybody.
Normal Halloween, I don't know what I thought you were doing.
But I thought you'd make more of a dog noise. What's your new skill? You had? No,
Scooby Doo, that's cool. So we went to Cracker Barrel and you can see inflation firsthand if you go out to eat because last time I was at Cracker Barrel, the portion sizes were like twice as big as they were this time. I got like, eight carrots and like 10 pieces of broccoli. It was horrible. But I did find this kid Gaskey with you hat so maybe it was worthwhile, I don't know.
tell you how often we eat there. I haven't eaten there and forever. It's
not it's not like our to go plays I know there's a lot that you should have seen all the hillbillies Holy crap. I don't remember marinara and Air and Air and Air.
We were on the way to a Halloween thing or in
the middle of bumfuck and there was all like, it was it was deliverance type stuff. Man. Sorry about the tangent. Today we're going to talk about something that We by no means are even close to experts in but it's something that you need to know for income investing because it is an important investing vehicle to generate income with and they're closing the fund we have mentioned previously.
And it gets confusing like we just had a discussion before we got on about funds in general. I've read so many books trying to get up to speed with what Tim does and like they start slinging stuff around like mutual funds and this fund and that kind of ETF and this kind of this that and it's like
really have a lot of similar characteristics, but there's like one or two savage slivers of difference and they'd like just literally rename things. Although closing and funds were around like 30 years before mutual funds so
well I was gonna I was gonna premise with the fact that closed ended funds Tim doesn't really invest in any of the other random kinds of like mutual funds or any other ETFs
but we may discuss that strategy at some point. It's a it's a new thing. It's income flyer income things so we don't actually have to contribute every month we're actually generating income off of investments that we then contributed back into investments. We may discuss it I don't know. But
basically, the whole point is these closed ended funds are a specific type of asset that we really like and we actually allocate a big number of or a higher amount of our portfolio to because they're so awesome. Like could
in an ideal portfolio, you'd probably have 25 to 33% and closing the funds like a quarter to a third. But
we wouldn't say that across the board for a fund like funds in general so on with the closed ended fund. Okay, sorry for that caveat. But
what are they it's confused. type of fund that issues a fixed number of shares through an IPO. So if you're familiar with IPOs, it's when a company goes from a private company. They issue an IPO thing on the markets and they become public at that point will the closed end funds do the exact same procedure? They'll issue X amount of shares and what they do with that is, like say they sell 10 million shares. They'll actually take the $10 million they sold and they'll allocate that towards different stocks and everything. So it's kind of like a mutual fund where they pool their money together and then they buy a bunch of different assets. The difference between closing mutual funds as as we found out is mutual funds are and closing the funds are way easier.
Way mucho better.
And Jen like you will find like if when you do research if you do if this piques your interest in doing research on closing the funds you will find that they are like all over everything you'll have like closing funds that will follow the s&p That'll do cover calls you have close you'll have close into funds that just do MLPs you have closing the funds that invest in Rei t so basically the tricky part to this is like why I don't know if it was last episode. I can't remember the last time since I was sick as hell but I remembered I said this in one of the previous episodes you have to have some ability to have a crystal ball. So you can kind of project out like you know, just based on how things are going and another war and OPEC being the criminals they are that oil is going to be a good, good good play for 2020 for probably the rest of 2023 Probably most of 2024. So a good place to start would be to look at closing in funds that deal with crude oil because it's going to be a hot place and once the interest rates start coming back down another good place to live would be closing into funds that deal with our Rei T's Rei T's had been punished ridiculously because of rising interest rates and once interest rates start going back down the prices of all Rei T's across the board are gonna go up so that'd be a good time to actually ditch if you have like say you have a percentage of your portfolio specifically in one or two Rei T's you may want to ditch both those and just bring to closing the font and get a similar return the distribution yield but you'll get a much more appreciation because they have their fingers and 5060 100 200 rei T's as opposed to just the one or two you haven't met so like it was
really cool, but the appreciation factor is it's there a lot like bonds where you have like a par value, but these are caught on nav price, where you actually know where the zero mark is for their value, intrinsic value. So if they're below that you can get them a discount if it's above the it'll show as a premium here. What they do is
like they they do exactly what ETFs and mutual funds do like they take all their assets and they tabulate how much they're all worth and that's their nav price. What mutual funds do is they tabulate their nav price once a day at the end of the day. Like if you try to buy a mutual fund during the day you're you can put your order in at any point it doesn't process till after the market closes. That's when they tabulate how much it's worth and then they distribute it that way. Whereas close into funds trade all day and you have an idea what their nap price is because it's not up to the minute obviously, what they do trade on the market and what happens a lot of times with closed ended funds is because it's supply and demand driven market driven. They you will can find ones that are 1012 15% underpriced and those are the ones that you want to look for. That's why why I really like closing the funds as a good income producing investment not so much for the distribution yield because you can get comparable yields and ETFs and in mutual funds, but because you have that ability to find them at like a 10% discount. So you know fix now know historically where they trade on their nav price you can go back and look what they've generally traded at nav or a little bit of like what their prices and
the reason they have that fixed down prices because they have a fixed number of shares.
So you can use your historical data with closing funds like say there's a couple of like, I forget which one like we'll just say CRF for example, like it generally trades I want to say six to 12% over now value. So anytime that it's below that value, you know that generally historically it trades at least at least 6% above so if you get it at below nav you know you're gonna be going if you hold it long enough, you're going to get at least a 6% price appreciation plus you're going through all the dividends during that timeframe. It's a win win, as long as you do the research and I didn't mention that in the email. If you've subscribed and got the email you read it if you haven't, you should because there's a like I think the email that I send out you get more information than you do in the podcast. And you're able to read it more concisely at your own leisure. But I did mention a friend when I was going but you do the research like you literally like there are certain investments that you have to research quite extensively for closing the funds and they would fall in that category you have to do the research on these. You can't just say oh, that one yields 20% And it's under now so cool. Well, if you do the research, you find that it's always under naff. So you're not actually getting any price appreciation potential. You're just getting the 20% yield. But then if you do further research, you'll see that they actually will offer rights which we'll discuss in a minute and the price will go down. So you're getting screwed, you're actually going to lose money in something that you think is going to be a moneymaker because you didn't do the research. So
we'll talk about more in a little bit about the the criteria that 10 Looks for to figure out what's a good closed ended fund and what's not but let's go back a second I want to go back to the actual like set number of shares. So number
shares like they what they go by explain it like they literally like they'll put they will pool the money together and they'll buy what they buy and though they'll issue 10 million or 20 million or 100 million shares and that doesn't change. Generally it doesn't change like I have to throw that word in there because she has like this this this fascination on absolutes and investing. Generally if a fund says they have 50 million shares at closing the fund says they have 50 million shares they won't deviate beyond the 50 million so the the I just
figured if it was called closed ended that like literally had to meet specific criteria where they could never
it's called goods called closing because generally there's no inflow or out flow of money. So it's closed.
Yeah was an open ended funds and a lot of the mutual funds and stuff what they'll do is they'll issue buybacks but
do buybacks to drop them to two to reduce the price sometimes sometimes, or they'll do that to reduce the like we were just discussing the premium versus discount. If it's too discounted, they'll buy the shares back to drive the price up to the produce that
that's why a lot of stocks have that price manipulation where they'll do dilution will they'll dump more shares into the market to borrow whatever they're doing? And they'll do buybacks to actually increase the prices they do a lot more price fluctuation.
Any of these investments in the closing fund, you can go to the PROSPER prospectus. I don't know why it's called that Latin for but it's profitable tell you how many X tubers they have. And that shouldn't deviate. I mean, I say shouldn't because as we get to it a little while he does deviate generally, they almost all deviate but there are some that what they do like I mentioned they typically focus on industries such as oil or gold or real estate or banks or whatever. sectors like sometimes they'll do oil but they'll do oil and Texas, the Permian Basin, or they'll do oil and Europe. So they actually will do different regions. I'm sorry, that was region I don't know what
sector is. Sectors are like, consumables. So that's not
important to me. So I don't know that yeah,
Tim's not too big on the I wish he keeps
bringing there's like a triangle to all investing into like, they have like, like they have different sectors and different industries and like
everybody harps on Don't say too much in one sector seems like I don't even care about sectors. I don't generally do diversify the way that you think though because you're like, Okay, we were talking about the old folks communities that's kind of like its own sector retirement
sector. Well, what happens with closing the funds they do the diversification for me generally like what you'll get just like I do like a large allocation so though only invest in large cap. By large cap they mean like I got 500 billion or whatever the hell the caps are. And then another episode we should do, I'll just invest in those companies that meet that criteria of we want large cap stocks, so they'll just they'll just cherry pick all the large cap stocks that they they they think are a deal or that pay a good dividend or something like that. Now, one of the areas you have to really pay attention to with closing the funds is their their leverage ratio, leverage percentage leverage, whatever you'd like to leverage that because it's labeled different things in different publications in different websites and different brokerages.
Leverage is it's like taking a HELOC out on your house
is like that because they don't bring it any money going. Sometimes the only way to make money is to borrow money to borrow money and like I did mention that with a couple previous investments I forget so I'm sorry, where I said that it looked like a really good company but its debt was too high. They took on a lot of debt to pay for either research and development either the distribution the dividends, or I guess expansion like anything that they'll take on debt for that but generally with closing the funds though, they'll leverage their portfolio to pay for distributions and that is a could be a red area which
is what I told him that sounds sketchy as if
they do it all the time. Yeah, that's bad. That's that's a huge red flag
but it is kind of like a normal operating procedure because you said that they only make profits from appreciation and the assets that they purchase the dividends.
Most companies actually have a product to sell what closing funds don't have a product to sell. They're literally just a pool
or like us as the investor we only really gain assets through our gain or gain whatever monetary increase.
Dividend is a shortcut for investors because they generally will do all the hard work and they have an overseer
and then I like the fact that you do have your like set price, you know if it's overvalued and undervalued. So I guess it is kind of like a mediary leg up are stepping stool training wheels is it like training
by overseer like there's like it's called actively managed. They'll actually be a person or a group of people or maybe a whole team. I don't know how that all works. I probably should sit down with like a person at some point and discuss that but they will look at what they have asset wise they have too many assets and something that they think is going to be bad like they like gold and silver for example, the next year gold and silver probably won't be as high as they are this year. They'll probably rial they'll take they'll sell some of their gold silver holdings and reallocate that fund somewhere else. That's what we mean by actively managed it's not like a computer doing all the stuff for him like the passive ones were like that passive managers that generally have a computer program that says we want to have X percent return and we want to have X percent in these different areas and the computer just executes everything and there's no one there's like not the person there
who's like second level thinking it's just based on does that didn't you say? ETFs are kind of like that algorithm. Some
of you. Some of you some some ETFs are passive, some ETFs are active and
that's where it gets confusing. I really do think we should come up with some kind of chart because it's like, it's
all like the basic difference to me. Again, not an expert as I said before we started between ETFs and closing the funds as ETFs cost more. For whatever reason. Yeah, the fees, the fees are more and the returns are generally less or sometimes comparable, like you're getting the exact same return for morency. So I can't well and
so the thing with the closed ended funds though they're more fixed income based correct. They are more they're more secure. The
ones closed ended funds will do a lot I've noticed this throughout the years. That we've been investing in them is that when they do their earnings report, which I don't know why they do earnings report, they're not bringing in money, but they're going to do earnings report. They will usually say for the upcoming quarter. Here's what our distribution rates are. So they're kind of like putting down and down what they're meant to pay off in the next three months. And that's where sometimes the leverage comes into play. So if they're paying out, say $100 million, and they don't have $100 million in free cash, well, they're going to have to borrow that to pay out what they set like two months ago, they're going to pay so they'll lower the leverage to pay off the distribution.
So everything they get hit kind of hard with these interest rate hikes but just
for for fixing for our fixed income purposes. They're pretty good because you know, like some will do for the whole year. Some will do for six months. But generally it's like a it's a quarterly thing.
I can't imagine predicting for a whole year we stuff moving like it is I
know that CRF and CLM do that. They'll say for 20 bucks for 2024. What they just they just had some come out saying well, we're going to take what our nav price is plus our shares everything at the end of 2023 and we're going to come up with our price for 2024. It should be within this range.
Is that why they did that? Right a price thing?
We'll get to right we'll get we'll get to that the price is right. It's what I think of okay, like I mentioned closing funds are called closing the funds because capital doesn't flow in and out as freely as it does in other funds. Open Ended funds like if they run out of cash, they'll just issue new shares that people will buy him they'll have that influx of money, same
price all over the place and you'll be like Why the heck of the price change so much.
So it does lead to dilution, but we'll get to that when we talk about things with closing the funds. Every fund has the problem of share dilution
but closed ended funds have it a
lot less very, allegedly, some
except for the couple that we were in Tim's like why the heck did this happen? Where we
were in CRF and CLM two years ago and they they sent it sent out a notice and I was like What the frick is this? And then like a week later, the price just dropped by like 20% I was like What the hell's going on? And I did research and I was like, Okay okay, like I said they have a nap price at IPO but because of supply and demand that nap price, and the actual share share price will always be in flux will always be moving up or down whatever else like that. Just one point. And 1/6 moment in time well they have everything set in stone with their prices and then then it's up to the market to determine things from there
to wait the nav price changes to net price changes every day. For these Oh, I don't know why I thought that was like completely set. I think we have this discussion before they
they issue shares primarily only once at the IPO. But in cases of emergency they do have things called Rights offering, which is where they will actually issue an email like I was just mentioning to current shareholders saying, Hey, we're going to be offering a bunch of new shares. Do you want to take part in this and then you have the the option you can say yeah, I'm buying X amount of shares. They'll do it based on they
only do it based on based on if you're a current share. If you're a current shareholder and you
only get a discount, you get a discount. It's always sold that discount but you only like there is a cap to it like they will take what you currently own and there is a there's a ratio so if you have 100 shares, you maybe can get 10
It's kind of like so the even cap that that's cool the
cap that what happened like I said was when they offered that I was like I don't want that that sounds stupid and then the price went down. Because everybody that's in it knows that the price of the nav and of their their share price is gonna go down because the stock dilution like they're out there and they're putting in like, 2 million or 5 million new shares so the price is gonna go down. What they try to do with the rights offering is they try to give you a discount that's below that reduction in price where they
think it's going to reduce do the same thing kind of happens when they do the dividend payouts for normal stocks where you have the the day after the accident date, where the share price will actually drop. The level of the actual dividend is paid out. It's a similar concept. It's like issuing shares a rights
offering happens quite frequently. The next one doesn't really happen too often it's secondary issuing, that's where they will actually issue out a group a bunch of new stocks to everyone not just to shareholders, they'll say hey, such and such fun has 5 million shares for sale and then it's open to everybody. There's no discount, as like a free for all.
And again, they do this when they have like an emergency situation for cash they
don't normally do that they kind of normally like to do the rights offering to they're rewarding their current shareholders. They don't like to just do something where they're bypassing the current chauveau shoulder of shareholders but they will
let you see something like that. That might be a sign of a tough times ahead.
They do that to pay off debt. Because as I said, like if they don't have the money for the distribution, they'll leverage themselves to borrow money. And so they'll actually whatever point in the year they'll offer new new shares the ever secondary shares or rights offering, they'll collect all that money and they'll pay off their debt. So when they go into the next year, they don't have any debt on the sheet. There are companies that do it pretty much every year CRF and CLM. Pretty much do it every year.
And there's the ones we're in
like a pattern now like once you establish the pattern like you know when they when they do this right offering the price is going to drop down X percent.
So you want to sell before then you want to sell and then buy it when you
have to to notice the pattern that every day you get an email saying hey, we're doing this again. So you want to be out of those. So forget the email format GTK usually, if you can notice the pattern you can make money even in these ones that do this all the time I normally say avoid the ones that do it all the time repeat offenders just means they have no idea how to manage their their their balance sheet. But once you can identify the pattern, you can then make money off them because they do generally you 18 to 20 some percent right now CLF and CRM are both above 30% yield.
Holy crap. Okay, I see why they're worth your while then. Okay,
we just said that generally don't repurchase shares and that's not even what they call it. They call it some I don't even know what they call it. fancy terms with no don't call repurchasing shares like a normal company does. They don't want it to red flag. It's kind of like the unit holder. But they do that to control the nav gap napkin, the price between current Barstow and yeah,
so if the naff price or if the current price of the stock is really low compared to the nap price, they'll actually buy back some shares to try to like reduce that gap. Because then they're obligated to then pay that appreciation back to net price. So there are
risks with closing and fines there are a lot of pitfalls. So you need to know where to look and where to look as how to screen and how to screen is what I'm gonna discuss right now because you know, this is the part Tim likes I don't really like it but when you when you when you screen these you can screen them in your current brokerage or you can screen them through. We have a couple of websites see f connect.com or stock market nba.com They both have really good closing they're fun screeners. You can actually control what criteria you're searching for. And the first one that I start with is the leverage. And Schwab I believe it's called the leverage percentage, but in the stock market MBA, it's called like leverage ratio or something like that. But you want their leverage to be under 30%. That means that they're only they're only lever only they're only leveraging 30% of their current their current holdings. Why did you giggle because, like, imagine, people did that. Yeah, normal 30% leverage. Yeah, that's pretty hardcore, whoever's my house for 30% So I can go buy something new. Um, you want it to be close to zero as you can, because generally, the only reason they're leveraging is to pay their distribution yield, which means they have a piss poor
financial, kind of like a sketchy situation. An
example of CF not to buy would be a Pemko. One Pemko is generally a good area to invest in, but PGP they have a 2.55 or less leverage factor right now. So that that's ridiculously high. Like, one 1% Like 1.0 is like, I think 1.00% Like I think that's how it works.
You said that two point whatever is two times what they're
what they'll tell you in the prospectus, again, is that when they do a 2.55 leverage factor, they they're trying to beat the index their investment invested in by 2.55.
And the crazy thing was that PGP one, that one only pays a 11.66% yield. So for that level of risk that won't
yield for someone that's doing like growth or something like that. It might be worthwhile but as an income investor, you don't really want to take on that undue risk for only 11.6. You
Yeah, considering you can get if not comparable or higher in what was
HTC HTC HTC is 10% Right now,
I know but it doesn't have that leverage risk,
have any risks. The second thing that I will look at when I'm screening is the nafs premium to discount. I always like to buy them at a discount and I like to be equivalent to if someone walked up to you and said, Hey, I will give you $1 for 90 cents, you're going to take that 100 times that 100 times you're making 10 cents, that same but if another person came up to Hey, I'll give you 90 cents for $1. You'd be like Nah, I'm good. Thanks. So that's the difference that the 10% premium versus discount and if you start looking
at shares of these closed ended funds, and same thing with bonds from that perspective, you'll never overpay.
The caveat is if you do historical research, and you see that generally that the currency is normally at, say 15% discount and it's currently at 10% Discount where you know, you're overpaying by 5%. Even if it's still at discount, yeah, that's where that's where the historical data is important. Like I don't know if I ever touched on that but like you should be looking at historical data and everything you research because that the past doesn't dictate the future but the past us pretty good indicator of idea where things should be like, like you can look at the past they will the 2008 was like the worst time in the market history for this and it's currently trading about at what it is in 2008. We don't want to be on that because it's had 15 years to grow and it's still trading it wasn't 2008 That's that's ask it or cheeks as I was waiting for you to say that. Okay, the third thing that I look at is the yield the yield super important like you don't lie. I mean, that's why we do what we do. We want a good yield. And I was do I did write this in the last email, like there's times when you want to invest in a high yield stuff and there's times that you don't want to what I do is I will mitigate the risk of the riskier high yield stuff by actually investing in lower yield stuff. But we averaged out it's still like it's 1214 16% you
so basically the general factor is don't invest just on yield itself you have to look at a lot of other factors don't
like I mean, I if you have a whole portfolio that's specifically all like above 50% yield, that's not good. Don't know any portfolio I've ever seen where they just invest in all high yield stuff. That's good. Because the probability is that the yield is high for a reason that that part is accurate. When you read anything they say anything like a few that has a high yield that has a high yield for a reason. There's
a reason they call them junk bonds. That usually is
correct, but you can still find awesome ones that have high yield that they just overlook, or they don't invest in because they can't like I don't know if we ever touched on that but there's certain things that certain
Yeah, so a lot of the banks in the larger hedge funds and the people they can't buy like bonds for specific, it can't buy anything below the B category for what is it B double B triple B, this specific limitation where they can't go below it, but the best opportunities for growth and dividend payout is just below that threshold. Same thing with a lot of these lower volume stocks or these smaller markets,
closing the funds. I can't invest in them because I think the higher money people have to have a certain market cap. And
I think with these Yes, a certain market cap these closed ended funds have a lot lower volume that was one of the what do we say the pain points, calm, calm. One of the cons of these, they have a lower volume so those bigger hedge funds. We aren't competing with the whales, which is kind of cool. It gives us little guys pretty good incentive or opportunity in the things that they just can't get into like Warren Buffett couldn't invest.
Warren Buffett, like he kind of bothers me. I here's a sidebar. Oh, I was doing research. I was doing research for the last email that I we just sent out yesterday because yesterday today, this morning this morning. And he came across a warren buffett quote it's not like a well known quote, but it's basically
this quotes are very derogatory. I'll try
to paraphrase he said people that use diversification don't know what they're doing.
Whereas every other great investor like literally I've read seven or eight books right now. Diversification what he's saying is
if you have a portfolio and you do you do instead of research and like say 10 different stocks and knowing everything about the 10 stock you you diversify your portfolio and have 20 stocks, because you're not sure about like say five of you don't know what you're doing is investor because you diversified but when you look at his current holdings, there's diversification across so many different sectors in so many different industries. It's like well, you're diversifying, but you're just doing it in specific companies, but it's the same concept.
Same concept. He's He's nitpicking and being a derogatory asshat in my opinion, so
that's there's my tangent for that
we could do. A picture of you clip it on his head, we totally do it.

Then the fourth thing that I look at in my closing and find a screener is the price per share. I don't want to spend say like,
you have to again we I think we've said this in multiple episodes but if you have two stocks that are all things equal except price and one has a higher price than the other one, we're always gonna go with the one with a lower price because say you have 100 or $1,000 to invest you're going to be able to buy more shares at a lower price one and at the same yield you're going to be getting more yield because of the higher share quantity the payouts are always per share
that actually holds true for like if you have say you found two awesome closing funds that have a similar yield like less than point five and the ones 11.5 once like 11.54 ones the dividend is paid monthly and once paid quarterly you want them monthly one just because you're getting compound compounds, sooner and you have it's more chance to actually sell after a dividend. If there's a problem as opposed to waiting two months to sell. You probably have
more volume, opportunities to sell to get out of it. If you have the monthly payouts for the
mean there's people that I know that specifically have just monthly portfolios like their dividend they get paid every month and that's all they invest in monthly payers. I mean, there's a lot that I like about that but I think they're missing out on yeah, there's some really good quarter. companies that pay out quarterly. Okay, the fifth thing I look at is the one year annualized return. That can be the mean every time you look at it in Schwab or Fidelity or Vanguard, whatever, it's going to have a little chart at the bottom that will show that has the current price and the naff price and they'll show you the one year return. You want to look at the one year annualized return on the nav if you want that to be more than zero obviously even then, depending on market conditions, say we're in a bull market, we'll obviously you want that to be more than zero but like currently at the current moment time if there's a closed end fund that actually is a one year annualized return on their nav is more than 0%. That's good,
because it's a crap show right now. It is a
complete shit show and then I look at the three year annualized return on that and I want that to I'd like that to be that like 10% but some of them only have the criteria of 7%. So like, whatever and then I will actually look at the yield and the distribution history. Now this is again is your app to do the historical research. Like if you're in a closet and far you're thinking about closing and fun and it has a history of cutting the dividend based on the naff price. Well you can't say Oh, this doesn't have a dividend increase. But there are closing funds that will actually have an increase in their dividend every year. If you can find those. Those are pretty, those are pretty sticky like that. Now one of the caveats I have is you might actually have to use two or three different screeners because I have yet to encounter a screen that has all the data points I just mentioned for whatever reason like they all have different data which is annoying to they research from so what I do is I will actually go into say Schwab and then I'll do the CF screener and then I'll come up with a list of like, I don't know four years or so and then I'll take those 14 I'll put it in a different screener. Or I'll do it in a different, like Vanguard or Robin Hood,
or is that why you're always on the computer when I wake up Yahoo
Finance, just plug it in there and I'll look at the criteria that I just mentioned to see what it's like and if it's good, then I'll put it in the spreadsheet as Hey, that's a good closing fund. And then once I get all the all that list that I had from like four, because there's 466 of these 100 dishes 160 trim it down to say 40 And then you put the 40 through a second screen and it brings it down to 12 and then you're at 12 Then you can take those 12 And you can do a deep dive research research into them like these are things that you really should know everything about. Just because history does tend to repeat itself and if they have a rights offering, say in odd years, you want to know they have a riot rights offering at odd years and this is an odd year so if their rights offering comes in November of odd years, you don't want to buy it right now.
You want to wait for that dip okay,
there's other things to consider. I don't remember saying this but she had it down here.
So I must I wasn't organizing the info that you were just spitting at me actively
managed versus passively managed, active usually how hires higher fees compared to the past manage investments typically,
but if they have a higher interest yield, or higher
yield rates, like anything, like if you're, if you gotta do all this work, you don't really want to be paying 3% for for for manager for stuff that you've done all the work for. I mean, that's why
if you can get that investment that's really good at a really discounted naff price with a high yield the fees kind of like
you I just don't like paying fees and stuff when I had to do all the research.
Well, I hate to say it but some of the stuff we're in is pretty
high fees. Yeah, well, those are just shooters.
I was making a point. I thought it was a good point. He says
if you get well below that price with a good dividend, this compensates the fees and that's actually accurate that's accurate across the board. That's why even just closing the funds like if you can get a value price with a good
deal so like for example, we're getting ready to sell the condo here and we're gonna hire a real realtor realtor. There's that word there. Real poor realtor whatever, and they can get you 20% higher than you get for Fizbo then you could sell on your own. It would make sense to go with that realtor 14% So it's the same thing, these active manage thing where if you're gonna get more and you're actually going to get a discount price, the fee kind of like if
you can find the passively managed when it hasn't seemed the same exact holdings with like a third of the fee you're gonna go
that would be yes, that would actually be preferable if you can find that but if not like don't get your panties in a twist basically over a 2% or 3%. If you have like a ridiculously discounted to NAV at a high yield with good criteria obviously, with
obviously, obviously obviously. Okay, the best place to look at the list of foreigner 66 CFCs is stock market MBA. They actually literally can just go in there, they'll pull your list up that has like some generic vague topics,
MBA like masters of business, not NBA like basketball and you
can actually click on their chart you can actually go the top columns you can click on say dividend yield, you can click on that it will actually put it in order from lowest to highest high school I love filters. Yeah, so you can filter it that way.
I know I'm a spreadsheet nerd.
One area that I would think would be a good spot for newbies to look at would be municipal funds, municipal being like bonds and other holdings. I know there's like I know there's certain companies certain funds that will I don't know what I'm trying to say. Like they literally just they just invest in municipals by themselves because of the tax advantage. Because their leverage they pass the capital gains on to use you're paying taxes on these at a capital gains level. So if you can, if you can kind of combine say a municipal one with a treasury one with a with a large large cap one then you're actually cutting your taxable income down by by 66%. So like that would be one area that I would look into is finding some minutes but once you can find pretty good ones that will yield so I think 6.5 to like 8% That's pretty good. And the default rate on those is next to zero so nothing. And then another one I would look at would be MLPs because I think price oil is just gonna go up and up and up and up and up for the foreseeable future. They're talking like I was reading some that pertain to inflation. It was an article I forget who wrote it, I feel bad. If you wrote this and you listen to this, I apologize. Basically, they said the only commodity in the in currently that is undervalued as oil. If you look at the price of everything from like the 40s on it's went up with the price of inflation. The only one that hasn't oil oil should be trading at like $160 a barrel based on inflation. Oh,
that's right. I remember you talking about that the other morning. That was a really interesting tidbit. Like
breads went up, cars went up, Steel's went up concrete went up, everything's went up according to the inflation increasing like a 2% rate for like seven years whatever. Only one that hasn't oils under price because it hasn't actually followed inflation, which is
scary if you think about it, because we're all feeling the heat from oil and pretty increase and
then another area that I would look at would be the foreign markets because I did mention this I remember mentioned that I don't remember what episode was because they kind of no offense all run together. But the foreign markets will be hot in 2024 because the America is such a shitshow with its debt and its wars and everything. So they'll like it foreign markets for foreign funds. They have indexes that have ETFs whatever you can invest in all those good one that I found is F d u it literally is like a fund in America that just invest in like the dividend aristocrats like they only invest in the blue chip stocks in Europe and it yields 7%
Which is pretty sweet. That's better than the blue chip aristocrats
give you. Another one that I've mentioned previously is ecc. We've made money in ECC every time we've held it because its yield is 27%. So you have 27% flow flux and that was still at an all time low.
I think that popped up on the all time 52 week low of less than like the last week or two. I don't know something like that might want to look into that
but uh, you can look at a lot of the financial ones and bank ones but the first thing they like the most important thing you have to look at when you're looking at those is to verify that their their borrower notes or their whatever they call them. They are the first lien and not the second lien the second lien means they get second crack at money so that means there's not going to any money left for him if
like there's always want to have first lien higher priority.
I think if n is the Indian font is going to be a huge one because actually excited to see that one. India is I think the third fastest growing economy right now.
Yeah.
So yeah, I if I if I was doing it, I would put like a couple 1000 and FDU I put a couple 1000 If and then I put then I find like a couple other ones like ACC or some Pinnacle Pemko ones like PDO or PDI. Generally Pemko is really good. I don't know what the hell they got going on with that PGP one works leverage so high. It's really concerning.
I mean, some weird sector since you don't like the word sector. And I
know I have a few publications that I read like daily and one of them is a training report or something like that. I forget exactly how it is on the website, but like they genuinely like they only research and invest in their their portfolio and closed ended funds. It's pretty broadly covers it covers your diversification versus your entity you know when to get in because it's the
I guess, I guess if you microfocus you become an expert.
Funds like on average payments like average, we average all 466 elements average is like 7.8% yield, whereas the stock market's like 1.5 So if you can do your research and know when to get into the good closer to the funds because there are ones out there that are really good. Like one that they always pump out is USA. I don't know it's like $5.80 or something like that. It's like next to nothing, but it's like one that everybody are like penny stock. Everybody loves that one. I wouldn't have more than 40% of my portfolio and closing the funds.
But you said 30 was a
good number in there again, like five to three three best I wouldn't have more than 14 Yeah,
there's so much Dustin like REITs and BD what I would
do to cover my ass to cya would be I have a 40% I would break it down into 10% increments and I will put like I said put I would put 20% into high yield like super over talking like 20 30% yielding ones and then I put 10 or 20% into the really conservative like municipal one six to seven to 8% where you know that you're you're going to get price appreciation and plus that six or 7% and there's no like volatility. So you can even with closing the finest and you can have a hedge of the risk with using municipals and treasuries and banking ones for some of them so like there's a way to actually invest in closed ended funds specifically where you can hedge the risk and but still reap the rewards of getting these ridiculous 20 30% yield.
I still sounds like a similar concept to how you approach stocks or equities in general, where you throw some fliers in there that are higher double digit Oh yeah, we always have like the lower lower safe ones. So
the one that we have now that I'm pretty sure it's gonna take this face off at some point
it take his face off.
It's gonna blow up like I is for know that it's gonna be I suspect it'll be 100 bagger shut down 100x Bi Bi TF bit farm. A penny stock. It's like $2 It's like I think it's like $1.30 a
share and you put money in that. Oh yeah. You're talking about the dealer. We have
200 shares of that. So whenever whenever it blows up, we're gonna make a few 1000 on like a couple $100
Let's get to say it and get it on whatever
for actually right what that what that one is, is literally is they just farm Bitcoin. So and bigger if you follow the news last week, they're like, they're in the process of actually creating cryptocurrency ETFs then they're gonna make them legal in the SEC and everything so like Bitcoin and Aetherium are going to shoot shoot off here.
Now how is that but how is that going to incentivize monetarily when the whole Bitcoin mining? You say farming or mining? How's it different than mining?
I don't know. I didn't read it.
You know really just like money at it. Just money to put in it.
I want to say 120 bucks. Okay. Want me to enter shares?
Sale just make 200 bucks, or 100 bucks.
That's gonna be 100x You know, it's gonna be worth 100 Okay, so
we're talking about 100x on 100%. It's gonna go up a lot. Yeah, put two zeros on that. 10 grand. That's gonna be a lot of money. That's worth $100
Yeah, so like, the point is we have those scattered throughout the portfolio. Like we
always get really interested on all sorts of fliers like
we have. We have six of the yield masks and their yield maxes in there. Right now that I pretty sure any of you listening wouldn't touch with a 10 foot pole. Well, we use those as is. So they're basically
like 10 grand buddy.
They basically just generate income. Every every month, you get dividends from that their payouts are like 2030 4050 Yeah,
I think you'd like those because they give you free money to then put in other flyers
because we don't have I don't have the capability right now to actually take our paycheck and like this is something that I wrote about. If you have the ability, you should be taking x percent of your paycheck every every two weeks or every month or however you do it and putting that into your portfolio. And the reason we're not able to do that because we're doing renovations and things like that. So I had to, to figure out a way that we could actually minimize our capital loss with a high yield that we then could take as our paychecks, quote unquote paycheck and then just turn that and put it into other other dividend stocks.
And the thing with the renovating we're this is why we like REITs once we get rid of this freakin monstrosity, we'll probably get like a $50,000 paydays. So that kind of makes up for the fact that we're not able to allocate portions of each paycheck. Right now,
like I said, Before, you should you should talk I did. Before I may have contradicted myself. I said before, I said, every paycheck you should be taking to take $100 out you should be putting 75 into your portfolio and 25 near emergency fund you should be doing a 7525 but your emergency fund should be pretty much set up before you start investing. We've
actually gone back and forth on this on a couple episodes. I think you should definitely have that emergency fund set up because one of the largest risks you can avoid from investing is not having to pull out when you're in a down market. And the way to do that is to have your emergency fund set up before but if you want your antsy and the pansies and you I guess sit in Tim's boat, it's the 2575 split dogwoods. I
still think I want but I would be putting my emergency fund into something like worthy that way I can keep contributing to it. It's going to keep growing. I mean, I don't have like a set number I just want to have cuz he was like doing the calculations for six months or something. I was like, I don't know. I'm just gonna keep putting money. So
on paper, certain stuff. You're like, I don't even know what this number is supposed to be. And I'm just like, What the hell you doing?
Just keep putting money in your emergency fund should always be growing. And the other area that you can do is you need to pay off your credit cards.
That's huge. We're gonna keep harping on that probably in every episode. You get your high interest debt paid off first. You should not invest you have emergencies fund set up, you should have
some form of like I would okay, I would actually do a hybrid now that I think about it. I would have six months because apparently that's important. Six months of emergency funds. Am I ready? Six is my emergency fund, but I would then contribute 25% of what I'm contributing into diversify, because you never know emergency might be super huge. The six months might not cover a
new roof or a new heart. You never know crisis without medical insurance or
you just might see a block of puppies that you want to buy a puppy block of puppies. Yeah, so I would. If you haven't subscribed, subscribe for the email. You get so much cool stuff that has
so much fun writing it every time I like edit it stick it out there. He's like, I love these emails.
I love how awesome I am.
There's so much good data in them like when I go through them and I edit them and I actually get them posted and stuff like there's great quotes which I love freaking inspirational quotes, especially the investing thing
so much for free. You get more for free in that than you do in anything I've ever seen.
Yeah, takers. Yeah. And he he actually pays for subscriptions. So
I would use them anyway. So like I'm just using whatever No,
but I'm saying the ones that you pay for like you're not getting as much out of it.
I don't get anything out like there's one that I may see utility forecaster. They basically cover all the utilities. If you don't have any utility portfolio you should
always because everybody needs utilities, because
they generally the revenue keeps growing because the government's won't let them fail. So the revenue is always growing and the dividends are always increasing. They might not be doing the 10 to 12 or 15%. But they're 4% Every year like clockwork 4% 4% 4% 4%
So you've heard it from Tim. If you haven't subscribed yet, we'll put the links down in the show notes to be able to do that right from the emails you get all sorts of cool shit. You'll be the first to know for any like news, any stocks that we absolutely say or like a wow, WTF is happening right now. Like you'll be the first to know they go out before the podcast. They grow up before we even talk about anything on social media. They go out first. Yeah, so Become an insider because that's where you'll be the first to know if
we get enough people there. I'll start making merch Yeah.
You're gonna make merch anyway, probably, but All right, guys. I think the next episode, we're gonna do a Halloween special Halloween.
Halloween is the best holiday of the year. Anyone that said otherwise is wrong.
We're gonna spin Halloween into a whole like money. Finance focus type thing. It's gonna be fun. For next week I'm
in costume but we you guys won't be able to see but we're going
to Hershey Park on Friday. We just did another Halloween thing. Yes. Last night last night. Yeah last night.
No no Hershey Park is not know what Hershey Park amusement park that's around us that like Hershey. Chocolate is right next to the
Hershey chocolate Hershey chocolate but they have an amusement park and it's so what
you do is you go there enjoy yourself and you just get on the free chocolate ride and gold and chocolate like you wouldn't believe. And then you feel crappy for like two days but still like worth it.
And it's so fun writing everything at night. So that's the
plan. So that Halloween episode and then we probably will do an episode at some point to break down all these freaking funds because they're so damn confusing.
We're gonna do a roundabout for types of assets and it'll because we probably should have done that first when we did the individual episodes. So we'll probably do like reference backs and just pull snippets out to try to like, give you a higher overview because it gets confusing and
because once we get through all this nonsense, technical, technical introduction
stuff we can actually then start doing podcasts that are specific to individual stocks and funds and things like that. You guys probably get a lot of good information enjoyment out of that because I can literally go well here is stock X here's what it's doing. Here's what's going on. Here's why I like it. Here's why I don't Yeah,
we'll walk you through what Tim looks at why we like it, what the companies do, and you'll get real time feedback. And you can walk through with us and then as you go through each one of these, like you'll listen to it if you're driving or whatever. And then you can go home and like dig through yourself. And as you do these and get comfortable with it, like creates muscle memory and that's what we want. It'll be Yeah, it'll be so much easier. And you'll see you actually see the money coming in. Even if you just do like a paper trading account. You can actually see what's happening because
ideally, I was thinking about this the other week ideally, I would like the people that listen to the podcast is stay the same or actually reduce their time. That makes sense. Because I want the people to listen to become so educated they don't need to hear me anymore so they don't see
we're saying we're basically our whole goal is to make you not need us. Yeah,
so you learn everything you need to learn and then you don't need to listen anymore and then so like I saw XY said like it stays the same. So like
teaching you fishing skills, so we don't have to keep giving you fish.
So that's that. So, see you guys next week. Have fun with Halloween stuff.
Happy Halloween kids.

Intro
What Are Close Ended Funds
How To Use The NAV Price To Buy At Discounts
Close Ended Funds vs Open Ended Fund Share Numbers
Pay Attention To Leverage Percentage For Distributions
Share Dilution & Rights Offerings
Secondary Shares & Buy Backs
How to Screen & Research To Reduce Risks
Actively Managed vs Passive Managed & Fees
What Types Of Close Ended Funds To Look Focus On
Close Ended Fund Portfolio Allocation
Savings & Emergency Fund
Next Episode Teaser