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Valyooo (37.90)

NAV does not matter



May 16, 2012 – Comments (8) | RELATED TICKERS: SVVC , GSVC , PHK

Fairly often i see blogs written about funds, suggesting to buy or sell the fund solely based on price/NAV.  To me, this is very flawed, in every scenario.  Let us explore:

1) Some funds have access to stocks we do not.  I will gladly pay more than NAV for SVVC or GSVC, which owns twitter and facebook.  I can't own those, and I think they will rise in value, so I pay a premium for this access. Makes sense to me

2) Some fund managers are bad at their job.  if a fund is consistently underperforming, why would I pay NAV?  Sure, the fund may be temporarily undervalued, but the manager will find a way to drop the value.

3) On the flip side, some managers are very good.  I will pay a premium for bill gross to pay me a 12% yield on a bond fund, rather than buy individual bonds at part and yield 4%

4) It beats paying a ton of commission.  Ill pay 3% over NAV to avoid paying $10 x 100 different companies.

5) It is the same thing as book value. So unless you base your purchases solely on if the company is over or under book value, you should not have the same approach for CEF's.

8 Comments – Post Your Own

#1) On May 16, 2012 at 12:28 PM, constructive (99.97) wrote:

1. SVVC trades at a 16% premium and GSVC trades at a 33% premium to their most recent NAV.  If you think their holdings are significantly underpriced, it makes sense to buy SVVC and GSVC.

2. True.

3. You can buy a Bill Gross managed mutual fund at NAV, so paying a 62% premium for PHK is pretty dumb.

4. I have no problem with paying 3% over NAV for a high quality CEF/ETF.

5. Generally, NAV is much more precise than book value since the assets are liquid.

Book value is not useful for valuing operating companies where most of the assets are illiquid or intangible.  Book value should be a primary consideration when you're valuing a company with lots of cash and investments.

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#2) On May 16, 2012 at 12:46 PM, Valyooo (37.90) wrote:

Does pimco really have a mutual fund at NAV with a yield as high as PHK?  if so let me know, I would be very interested in it.

However, bonds trade at premiums and discounts all the time, depending on interest rate environment, so I am not sure why it would be much different for a bond fund.

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#3) On May 16, 2012 at 2:04 PM, constructive (99.97) wrote:

You can stuff some cash in your sock drawer and pay yourself a better yield than PHK.  Cash in sock drawer is a more attractive investment.

PHK trades at 64% premium on top of the individual bonds' premium to par value.

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#4) On May 16, 2012 at 3:32 PM, Valyooo (37.90) wrote:

Cash in my sock drawer does not yield 8.2%.  If it dropped to trading at par, it would be 13.5% yield...and then I would buy even more.

Yes, it is a premium on top of individual bonds premiums.  But do I have the skill to hand select a bunch of bonds that will yield me 8.2% in a low rate environment? No.  If you will pay a premium for a bond because it has a good rate, why not a bond fund on top of the bond? Also, my sock drawer does not have a chart like this

It always trades at a premium, do you think nobody else notices and one day they do and dump it?

Not trying to be sarcastic at all, just enjoying both sides.

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#5) On May 18, 2012 at 3:24 PM, RallyCry (22.23) wrote:

Valyooo I pitched against GSVC as nothing leads me to believe that they deserve a premium valuation based on how they are handling their existing social media positons. Several are underwater. The other real problem is they don't have a significant enough stake in Facebook and Twitter to move the needle.  (See my pitch) Now they have issued more shares whose proceeds may be used to acquire more shares of companies such as Twitter, however shareholders are getting diluted in the process.

I feel that the risk reward just isn't that great. I'd rather buy Facebook outright if I felt they are going to execute rather than invest in the management of stakes in a mix of private and public internet companies, which may or may not succeed. Basically, in these management companies I need the executives to manage the investments and hope they concentrate on the companies that are thriving while cutting out the losers.  

Can GSVC demonstrate they can manage a diversified portfolio of technology companies that evolve at a rapid pace? Maybe, but it is a tough sell for me.

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#6) On May 18, 2012 at 3:47 PM, Valyooo (37.90) wrote:


You may definitely be right. My point was though, that many people go "Its over NAV so its a short" or "its under NAV so its a long", which is terrible

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#7) On May 18, 2012 at 4:10 PM, RallyCry (22.23) wrote:

I gotcha. As an example, it seems like Berkshire really hasn't been getting the love it traditionally gets with respect to a premuim valuation. Wonder if Buffett has lost his

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#8) On May 18, 2012 at 8:53 PM, Valyooo (37.90) wrote:

After buying 67 newspaper companies I am thinking maybe. But his track record is too good for me to ever say that

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