Yesterday, Dr. Bauer noted that I would provide insight into a unique way to invest like Warren Buffett and his company Berkshire Hathaway (NYSE:BRK-A). Now, most investors don’t have $400,000 to purchase one single share of Berkshire A stock. But I can help you invest for much cheaper and benefit from a fund that replicates Berkshire’s portfolio at a stunning level of success.
We’re also talking about a portfolio of Buffett’s stocks at a 15% discount to the net asset value of the fund. And as one more bonus – a 2.9% dividend. You could buy B shares of Berkshire Hathaway (NYSE:BRK-B) that trades north of $290 per share and pays no dividend. Or you can learn about a special closed-end fund that gives us the opportunity to make money off Berkshire’s strategy.
What’s a Closed End Fund?
A closed end fund is an alternative investment asset that trades on the public stock market. It’s like a mutual fund or an exchange-traded fund (ETF). When a fund manager launches a closed-end fund, they create a portfolio of stocks, bonds, and cash assets. The fund then sells a preset number of shares on the open market. Shares cannot be added or subtracted to the original total).
These funds operate differently than a mutual fund, which marks their net asset value (NAV) each day. Closed end funds do not follow this practice. Instead, closed-end funds swing back and forth based on the market. Sometimes, closed-end funds will sell at a premium to the total fund’s net asset value.
Other times, they can trade at a steep discount. If there was a Haven closed-end fund, let’s imagine that shares trade $19.00. But, the NAV might be $20.00. The signals the fund trades at a 5% discount. Now, if the fund trades at $25.00 a NAV of $20, the fund trades at a 25% premium. We are looking for unique opportunities when the fund trades at a discount.
Here’s the Fund to Own to Invest like Warren Buffet
Take a look at the Boulder Growth & Income Fund (NYSE:BIF). This is a fund that largely replicates Buffett’s portfolio. The fund owns $437.44 million in BRK Class A stock and another $159.90 million in BRK.B stock.
The fund also owns stakes in Cisco Systems (NASDAQ:CSCO), JPMorgan Chase (NYSE:JPM), Pfizer (NYSE:PFE) and Yum! Brands (NYSE:YUM). These are all stocks owned by Buffett’s firm. Today, the stock trades at $14.05, while the NAV sits at $16.45.
That’s roughly a 15% discount to the net asset value of the fund. Remember, I also noted that the fund pays a dividend of 2.9%. This is significant because Berkshire Hathaway famously does not pay a dividend.
Combine the income potential of this fund with the upside created by the gap between the stock price and the stock’s underlying net asset value. This is definitely a long-term fund that you can own on the cheap and use dividend reinvestment to build wealth over time. We’ll discuss closed-end funds at greater length in the near future.
