Another feature of Investment Company shares (and please stay away from gimmicky, passively managed, or indexed types) is somewhat surprising and difficult to explain.
The price you pay for the shares frequently represents a discount from the market value of the securities contained in the managed portfolio.
So instead of buying a diversified group of illiquid individual securities at a premium, you are reaping the benefit of a portfolio of (quite possibly the same) securities at a discount.
Additionally, and unlike regular Mutual Funds that can issue as many shares as they like without your approval, CEFs will give you the first shot at any additional shares they intend to distribute to investors.
Stop, put down the phone. Move into these securities calmly, without taking unnecessary losses on good quality holdings, and never buy a new issue.
I meant to say: absolutely never buy a new issue, for all of the usual reasons. As with individual securities, there are reasons for unusually high or low yields, like too much risk or poor management.
No matter how well managed a junk bond portfolio is, it’s still just junk. So do a little research and spread your dollars around the many management companies that are out there. If your advisor tells you that all of this is risky, ill-advised foolishness… well, that’s Wall Street, and the baby needs shoes.
[The final article in this Income Investing trilogy will be on managing the Income Portfolio using the Working Capital Modeent Strategy]
Steve Selengut http://www.sancoservices.com Professional Portfolio Management since 1979 Author of: “The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read”, and “A Millionaire’s Secret Investment Strategy”