The Rokslide Stock Traders Thread

IF Russia and Ukraine make a deal in the next few days to weeks, do you guys think the oil stocks take a pretty big dip? Based on this idea that this conflict is being sold as the reason we have high prices. I still feel they are a good hold though the summer at this point, but maybe try and sell and buy back in? Just curious others opinion on how this conflict coming to an end may affect the market and oil specifically?
 
Paradox said:
So, I have been lurking on this thread for a while now and don’t claim to be expert on anything. However, it seems most of the discussion has been penny stock or bitcoin, neither of which I know enough about to spend money on. Does anyone else invest in closed end funds for income? Recently read an opinion piece about qqqx, yielding 7% potential for NAV discount. Any thoughts? At what point is ROC a bad omen? (Seems they run .04-.08 quarterly)
just looking for insight from those with more experience in the market
Click to expand...

First I'm not a financial advisor. Anything I say is my opinion and for entertainment purposes only.....

Regarding CEF's....

They are generally a type of "fund". Unlike mutual funds they have an asset base that is not affected by the shares. A mutual fund has to sell assets at whatever price to meet demands if there is a run for the door. A CEF has shares that are separate from the "assets", sell all you want the "working capital" is not affected. They are also in just about every sector or type of investment you can think of.

The primary goal of most CEF's is to generate income. They can do this by multiple means. Some have investments they use options against - covered calls, puts etc. Most use some sort of leverage. Say they own 1 million of XYZ stock that pays 5% dividends. They can borrow another million to buy more stock, pay 2% interest on the loan, collect the 5% creating a 3% spread. Then they can pay you say 7% on a 5% yield. The leverage used by the funds is their leverage. You are not in a leveraged position. The most you can ever lose is your investment.

Capital appreciation is a secondary goal. Personally they usually don't appreciate in value. They generally pay an amount that if you reinvest it would "grow" your capital enough. If you spend it or invest it elsewhere it still can compound your investments. For instance if you are getting a 7% annual distribution, paid monthly, and you reinvest all distributions in the fund. At the end of the year you will actually get around 8.1% yield. Due to the monthly compounding it increases the annual pay - strictly from increasing your share count. Sometimes you can buy a fund at a large discount from normal. Then you "expect" it to revert to the mean giving you some capital gains.

Some funds are almost always priced at a discount, some at a premium. How this works is if the share price for the fund is less than the liquidation value of the assets it holds - it is at a discount. Obviously opposite for premium pricing. So if the value of the assets it holds is $10 per share, and the share price is $8 per share, you are basically buying $10 for $8. Of course the asset value changes just like stocks or funds do all the time.

Return of Capital is a tricky thing. Good ROC is if the fund bought AAPL at $150 a share and sold it at $180 a share. To pass the capital gains on to you, they use it for the distribution. Some will be short term capital gain, some might be ROC, Some might be Long term capital gains. The funds form 19a is the disclosure of how the distribution is broken down. In a taxable account ROC also reduces your cost basis of the shares you own. This will affect taxation on a sale of the shares. Bad ROC is when the fund can't make the income to pay the distribution. They then sell assets, which reduces the working capital and makes it harder to make the income to pay you next time, just to pay you.

Several websites are available to research CEF's. I looked up QQQX, I see no ROC in the last distribution. It is trading at a premium higher than normal right now. Like paying $10 for $9. The fund has to be worth it for a premium. Here are a couple sites....

CEF Connect - Brought to you by Nuveen Closed-End Funds

www.cefconnect.com www.cefconnect.com

CEFData.com

cefdata.com

Closed End Fund Association -

An association of leading investment companies committed to educating investors on alternative income opportunities
www.cefa.com www.cefa.com

In my own case I use them in my IRA. As I am retired and have no "income" I cannot contribute to my IRA. I use CEF's in the IRA to produce "new cash" for me to invest in my IRA. I can increase the "contributions" I make to the IRA by increasing the share count in my CEF's - like when the market is at all time highs. When the market dips I use the "cash income" to invest in my other core holdings. Thus the "dollar cost average" can keep working.

CEF's can also be useful in a taxable account. Let's say you want to buy a new car. You have X amount in the bank getting 1.2%. Rather than paying off the car or putting more down. Take the cash, put it in CEF's and use the "income" to pay for the car. Then you keep your money and still have it if an emergency happens. It also can keep paying you once the car is paid off. I'm not a tax advisor....

There are several that pay monthly. FOF is currently paying 8% annually on a monthly basis. It is also a "fund of funds" and at a discount to Net asset value. PTY is currently paying over 9% annually on a monthly basis. It is trading at a premium to net asset value, but at a lower average premium than normal (so technically "at a discount"?). These are not recommendations, just examples. The point is at 8-9% distribution your "gains" are nearly the same as a stock index fund that does 8% average a year - but you don't have to sell anything. They just keep paying. Plus you can give yourself a "raise" anytime you want by buying more shares.

There is a lot more if you want to learn about them. Distributions are broken down into different "tax" items, depending on the fund the amount can also vary - most funds try NOT to do this. Some even make it a regular thing to pay a "special" distribution - usually around Christmas!

They aren't for everyone. Dividend investing is a more conservative route. Especially if you have a long time frame. I believe Warren Buffet gets paid more in distributions from coke annually than he paid for the stock originally. Of course that was 40 years ago or so. However, divi stocks generally create capital gains as well over time. (Except the ones that fail)


Hopefully this is helpful...

Wacko
 
Wacko,
that was a great breakdown on CEFs!
also I have used CEFConnect but did not know about CEFData. Thank you.
I was not clear on ROC. How would you know they are selling off assets to make the payments?
anyway, I am primarily investing my wife’s money in CEFs as she would otherwise buy a CD at 1.2%! Looks like I should have some in my account as well.
Ed
 
Paradox said:
Wacko,
that was a great breakdown on CEFs!
also I have used CEFConnect but did not know about CEFData. Thank you.
I was not clear on ROC. How would you know they are selling off assets to make the payments?
anyway, I am primarily investing my wife’s money in CEFs as she would otherwise buy a CD at 1.2%! Looks like I should have some in my account as well.
Ed
Click to expand...

I generally look for funds that the distribution is from "income only". Not the "managed distribution" funds. Managed funds have to pay the distribution amount regardless of what they make. Funds that use an option strategy almost always have ROC. The option income is basically cash coming in to the fund, which gets passed on to you as ROC.

Here is a pdf on ROC....

There are plenty of other resources to figure it out. It's generally fairly hidden by some funds. I like to check out their annual reports and see what they are doing. One clear sign is if the distribution is 100% ROC...no income, no gains. Big red flag.

One other thing to keep in mind I had to figure out is when a fund has MLP's and some LP's in it. If so the distributions can sometimes be a taxable event even in an IRA. Regardless of whether you did a withdrawal of funds!!

On Cefdata another tip is when you search a symbol. On the right it will show its performance "Total return %" in the chart you will see "peer rankings" ....if you click on the peer rankings row it will pull up the CEF's it was ranked against. Depending on your time frame you can click on any of the timeframe rankings to pull them up. It is also helpful to find out if a fund has been around or new. Helpful to find "best in class" as well for your outlook.

Steven Bavaria wrote a book - The Income Factory. In it he explains his methodology for investing in CEF's and talks about ROC and other specifics pretty well. It's an interesting read. I am not 100% CEF like he has been. I use them as a tool to help build other investments.

A lot of naysayers on CEF's. However I became interested in them more when I found out a lot of large banks were major shareholders of some CEF's. Never see them as shareholders in specific companies. I mean if the bank can pay you 1.2% on your money, then use your money to make 7% - that spread of 5.8%...is an unlimited return because it's not their money.......


Wacko
 
BackcountryBloodline said:
Well done and well deserved my friend, enjoy the new ride!
Click to expand...
Thank you!
The simple truth is that we've all helped each other to stay focused and committed. Knowing that there were others out there hanging on through this tumultuous market instilled hope, if not confidence.

Been an honor to be part of this thread, 500 pages of help, encouragement, advice, ups and downs. And never any unkind words! Unheard of on any forum.
 
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