Stocks are expensive, but closed fund (CEF) investors are not interested. With dividends double or even triple the regular payout of the S&P 500, you have the advantage of being able to shop for less.
Our ability is to buy MSEs that trade at a discount relative to their net asset value (NAV or underlying portfolio value). With this simple step, you can “turn back your time” and essentially buy the level of shares CEF held on the open market a few months ago.
(And there are plenty of cheap CEFs, such as trading at 10% off and paying more than double the average dividend on stocks, which we’ll discuss in more detail below.)
One thing in today’s market that everyone ignores
Yes, there are many reasons to enter this market, but the most important is the fact that investors only focus on indicators such as the S&P 500 P/E ratio. I wrote this way beyond 22 levels at the end of 2019.
The thing is, most people here stop ignoring the fact that the economy is growing fast and try to sustain it. This increases the company’s profits, reduces the gap between the “P” and “E” in our key numbers and thus creates the basis for more profits.
Let’s take a look at the latest figures to see how this can be done, and then let’s look back and take a detailed look at CEF, including the last one.
Earnings increase, but start at a low level
Indeed, the current high price/earnings ratio is justified, at least in part, by recent returns from S&P 500 companies. So far, 80% of companies releasing third-quarter results are making more money than analysts expect. And the total turnover increases every year by an average of 30%.
Also, keep in mind that the winning season has just begun. Revenue is projected to be 40% higher overall in 2021 as the blockade and strict pandemic restrictions reflect less pressure on the company’s earnings in 2020.
That big jump in earnings is to be expected given the lowest level in 2020, and since launching in March, it’s no surprise that stock prices have been on the rise. But have stock prices gone too far and fallen in recent weeks? In other words, all sales growth in 2021 is forecast in the market?
The real question here is whether we can expect a further significant increase in profit over the next few years and thus justify an increase in the price/earnings ratio. GDP growth (a factor ignored by most P/E ratios by most investors) helps answer this question.
The IMF forecasts US economic growth will be 3.5% next year. So not only strong revenue growth in 2021 next year, but this one too. And if the economy remains in recession for the next few years, current forecasts suggest that profits will continue to increase, which will justify and ultimately increase current market prices.
Great time to buy stocks – but investors in CEF don’t pay retail
Overall, this is a great opportunity to buy stocks, especially if you own stocks long term or invest primarily in earnings. But we must not rush. As previously mentioned, by purchasing CEF at a discount, you are in a better position as we always aim to be. CEF Insider Services.
For example, a high-capital investor might want to use a CEF like this: Tri-Continental Corporation (TY) rather than buying shares individually or through an ETF. (Don’t be surprised if you haven’t heard of TY operated by Columbia Threadneedle Investments. As I said before, the CEF world is small and some of them are Nuveen, PIMCO, BlackRock.
However, as a CEF, TY has two other advantages. With this stock market price discount (the fund trades at a 10% discount to NAV, you can basically get a large portfolio of strong US stocks for 90 cents, which is usually $). More than double the dividends paid out on shares in the S&P 500: At the time of writing, TY shares are earning around 3.5%.