Value Investing Ideas

I’m going to start by seeding this blog with some stuff that I have written and posted elsewhere.

N.B. I haven’t studied this in depth, I’ve just looked it over quickly, and wrote this up more to clarify my thinking than to make a solid recommendation. Do your own homework on this one.

Boulder Total Return fund is a closed fund that invests in a collection of stocks we’d recognize as value plays - Berkshire, Walgreens, Yum!, Wal-Mart, Eaton, BUD, etc. Ordinarily I’d never recommend buying a closed fund - why pay somebody else to pick your stocks, and have to live with decisions you may disagree with - who knows when they will buy a stock you don’t want them to buy, or sell something before it reaches intrinsic value? However, this provides a unique opportunity to buy stocks such as BRK, YUM, etc., at a significant discount to their already depressed rates.

NAV of BTF as of Nov 28 is $12.80, and the shares were trading at $9.17, a 27.8% discount. In other words, if you were to buy the shares owned by BTF on the open market on Nov 28th, it would cost you $12.80. By buying BTF, you get them for $9.17 (and under $9 today).

BTF had a yield of 36.5%. Note that the payouts are not dividends, they are partially return of capital. As such, it is a tax free cash flow. However, you do need to deduct it from your cost basis. I.e., consult a tax professional. However, it is important to know that they announced ending the distribution. to me this is a smart move - they have a great opportunity to invest in this market, why put the money in the hands of shareholders? My answer is, well, I can invest it as well as they can, but in general sophisticated stockpickers aren’t buying this fund. So, for the average shareholder it’s a positive decision. I would expect them to do the same thing for BTF, though they have not announced it. Until they do, you will get a juicy return for holding BRK.A, WAG, etc., at depressed rates.

At the time of the announcement, the discount to NAV was 9%, compared to the current 27.8%. Clearly the market was unhappy about losing the distribution.

Holdings
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1 Berkshire Hathaway Inc, Class A $80,454,000 27.06%
2 Yum! Brands Inc $42,102,400 14.16%
3 Berkshire Hathaway Inc, Class B $ 35,898,400 12.07%
4 Wal-Mart Stores Inc $21,855,900 7.35%
5 Eaton Corp $11,013,590 3.70%
6 Anheuser-Busch Companies $8,625,006 2.90%
7 Cheung Kong Holdings $7,403,711 2.49%
8 Claymore Preferred Securities Income $7,370,264 2.48%
9 Walgreen Co $6,448,110 2.17%
10 Burlington Northern Santa Fe $6,444,000 2.17%

cash equivelents: $8,806,792

There are another 28 holdings, but they are all at under 2%. Some are a real disapointment, such as Washington Mutual, but that is more the problem of old shareholders, not new shareholders. The top 10 stocks, plus cash, equals 80% of the holdings.

Anheuser-Busch was acquired by InBev for $70/share, so BTF should now have nearly $18M in cash which they can either deploy in the market or return to shareholders via the monthly distributions.

Conclusion
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Owning this fund will pay you in three ways. First, eventually the fund will close the discount to NAV. They haven’t traded at a premium to NAV, but a return of 25% should be expected.

Second, you will be paid by the eventual appreciation of the holdings.

Third, once distributions are reinstated, you will earn around 15%/year. These cash flows are a tax free way to participate in the increase the appreciation of the assets under control.

For this, you will be paying a 2% fee/year to management to manage the investments. I’d ordinarily do no such thing - why pay somebody to buy BRK, WAG, etc for you?

I wouldn’t call this my best idea, but if you were looking to buy several of the stocks in the top 10, and consider them good long term holdings, why not get them at a huge discount to today’s depressed prices?