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I remember some posts about this CEF earlier (formerly $BIF i believe)

Decent value portfolio w over 40% in BRK and 10% in JPM. YUM EPD MSFT EVR CSCO SWK as well

The discount to NAV is currently at 23%. While this will probably stay at a discount, it appears to be at decade highs, usually fluctuating between 10-20%.

The 1% fees will eat away at performance. But could be interesting at a very overpriced market. Thoughts?

" I remember some posts about this CEF earlier (formerly $BIF i believe)"

I brought up stew, cet, and adx, several times over the years. I hate to talk against my book, but, IF you agree with Buffett that brkb is fully valued at 475ish, stew at a small premium to its typical discount isn't a compelling value, imo. IF Harris won, stew may have been a great value but the controlling family no longer has to worry about potential Dem tax proposals, going forward. Good luck.

I believe there may even be a different way of looking at this. STEW recently substantially raised its distribution. Now, its done this annually but its been increasing even more past couple years I believe strategically.

The CEF been poorly marketed and its discount really expanded this year. The challenge here is: CEFs are generally bought for income— and STEW has been an obscure, 23 stock ultra concentrated fund with a couple percent dividend. 40% BRKA&B. Kind of a yawn void of a label lol.

Well, the huge recent 23% discount I believe allows STEW to effectively be viewed as an equity income CEF —as the discount supersizes its effective and raised payout now to 4%. The discount IMO is moving STEW recently to an approach emphasizing the payout. It sees opportunity: See 22.2% annnual payout increase this month.

No reason IMO the CEF should trade more than its historic 15% or so NAV discount.

This may sound gimmicky, but I believe it’s strategic: STEW will I believe strategically sell small portions of BRK annually (it’s been doing this recently) to achieve 2 things: diversify modestly away from its 40% top BRK holding, and fund a cash payout that translates to shareholders into more than the actual dollar payout due to the massive, and even much higher than historic NAV discount. A 4% payout to shareholders only cost STEW 3% of NAV. STEW dollars are $1.23 to us. The CEF managers challenge will be to choose appropriate BRK sell points. They are value guys and I believe can be trusted to liquidate at favorable prices.

Yes, the expense ratio is high. Absolutely. I think, though, the opportunity here is still attractive. I own in an IRA to avoid the distribution tax bill and equally important: if this NAV discount doesn’t materially reduce—pressure will be to liquidate the CEF, which today would be a 23% bonus. The large “tax bill” from such a liquidation would flow from on the CEF to its stockholders.Why I chose to own in an IRA.

I think this is value “under a rock”. This is neither followed nor understood.

" This may sound gimmicky, but I believe it’s strategic: STEW will I believe strategically sell small portions of BRK annually (it’s been doing this recently) to achieve 2 things: diversify modestly away from its 40% top BRK holding,"

Last year stew sold over 1/3 of its brkb holdings in the low 400s and half its wmt holdings. As it turns out both were terrible sales. Who knows how successfully they will reinvest the proceeds? Buffett handpicked T and T and they have proven, trading is hard! I sold 90 percent of my stew, still love adx and cet in my IRA. I'm OLD, RMDs are easy from the annual distributions. Best of luck with it.

<<Last year stew sold over 1/3 of its brkb holdings in the low 400s and half its wmt holdings.<<

True. But STEW is over 32% BRKA, I believe more than 80% of its Berkshire holdings, so the sales you reference of the Bs are not that substantial. As you know, the bulk of the BRK shares were purchased by Stu many years before the Bs even existed. Its exposure to Berkshire portfolio-wise is actually almost exactly the same as a year ago. Berkshire’s outrun the other holdings and the sales proceeds close-to-match that outperformance,

It’s a $2 Billion or so portfolio, and unlike most CEFs employs only light leverage and its borrowing mostly at a fixed rate I believe just over 2%.

The unusual NAV discount combined with this month’s announced 22.2% annual payout increase—will perhaps put this on investment radars. It’s interesting but the discount has been shaved almost 2 full points in a couple days with Berkshire getting crushed—I think there’s a protection on the Berkshire downside case to be made here.

I strongly suspect STEW will sell modest chunks annually of Berkshire going forward and I’d expect each year sales to be at not unfavorable prices. The sales in the $400s were favorable relative to the year’s lower price range. They’re not market timers.

IF, Harris won stew may have offered the entire fund to Buffett for say a 5-7 % discount to NAV, it's like an odd lot for brk. The control family may have minimized the tax consequences and hassles with a sale. Those issues are now history for the next four years.

“ The unusual NAV discount combined with this month’s announced 22.2% annual payout increase—will perhaps put this on investment radars.“ Btw, over the years stew has become incrementally more shareholder friendly with lower fees and a higher dividend. However, I suspect if you and I were running the fund, we would be aggressive buyers at a 22 percent discount over a higher dividend. Unlike Adx and many other cefs there is no chance an activist can step in and push for a tender offer. The higher dividend reduces the chance of a tender, imo.

That’s a good point, yes.

I see your point on the buybacks and it’s a good choice. But I think the fund is creating a new paradigm and an actual identity.

As it works towards a 5% effective payout—via continued strategic increases and market pricing, I think it has a much better chance of reducing its NAV discount. Just that dynamic alone gives a double digit return boost on top of portfolio performance. And downside protection of a lower than market PE and value orientation.

“ And downside protection of a lower than market PE and value orientation.” Unless Brk revisits 450 or lower. I assume the family signed off on the sales of the Bs in the low 400s and we can’t dismiss the fact that Buffett has no interest at 470. What’s your guess, which comes first brkb 500 or brkb 440? If you believe 440 is the favorite, thats a significant consideration.

I believe there’ll be modest annual sales at mostly non unfavorable prices.

At a dollar sales volume that essentially replicates what would be Berkshire’s modest dividend payout—if BRK chose to do so rather than retain all capital.

So..doing what I do and thousands of others do and Buffett advises to do: we choose our own dividend. Sometimes timing looks genius, other times dumb..over time: meaningless.

That’s the glide path for next several years.

What’s your guess, which comes first brkb 500 or brkb 440?

500

52 week high is 491

I'm thinking to sell some at 501. Probably a bad idea.

" 500

52 week high is 491"

It's interesting to see how many brk partners have little respect for Buffett's opinion on brk value. Who knows, maybe Buffett will buy 100 billion bitcoin, on margin, before year end. I suspect when Buffett reads about 24 hour trading AND public companies issuing zero coupon bonds, to buy more bitcoin at 96,000, his heart starts to race and his health is at risk! What a country, what a market! Only in America.

...AND public companies issuing zero coupon bonds...

Of course, Mr Buffett was the first one ever to sell negative coupon bonds. He's ahead of the pack.
Though the SQUARZ securities had interesting terms, in effect he was writing call options 15% out of the money in return for float. At the time he did so, price-to-known-book was 1.975, and the exercise price (good for five years) was 2.27 times the starting P/B.

Jim

“ At the time he did so, price-to-known-book was 1.975, and the exercise price (good for five years) was 2.27 times the starting P/B.“ Perhaps Buffett will shock the world and do a secondary at 470 to raise much needed cash? 😇

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