Talking Closed-End Discounts With Richard Shaker
Successfully trading closed-end funds does not require a doctorate in higher math, but, as the old joke goes, it doesn't hurt.
After retiring as chief of mathematical research for the National Security Agency in 1995, Richard Shaker started Shaker Financial Services in order to focus his quant skills on trading closed-end funds. And while Masters of the Universe like New York Mayor Mike Bloomberg and New Jersey Sen. John Corzine have traditionally used their banking bundles to launch second careers in politics, Shaker says his reverse course from Washington to Wall Street has proven both intellectually and financially rewarding.
Based in Annapolis, Md., Shaker Financial Services manages more than $45 million in assets for high net-worth investors, up from $3 million in 1995 and $24 million in 2002.
TheStreet.com asked Shaker for a quick seminar on the often misunderstood topic of closed-end funds.What are the advantages/disadvantages of closed-end funds vs. open-end mutual funds? The advantage in buying an open-end fund is knowing that no matter what day you choose to sell, your payout will equal net asset value. An advantage for long-term investors in buying closed-end funds is the ability to buy at a discount. Dividends, capital gain distributions and tenders are paid at 100% on the dollar, whereas the purchase cost was at less than 100% on the dollar. For a trader, the advantage is to be able to buy the fund when, temporarily, the discount is greater than it typically is, or when the premium is less. This is because there is an empirical proposition that a fund's discount will revert to its average. There are some studies that challenge this principle, but I believe it to be true from experience and, indeed, it is the basis for most of my success as a money manager.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV