Using the Value Stock Buy List Program Productively - CEFs (Closed End Funds) - Part 2 - NASDAQ Exclusion Issue

If you didn't have questions, the "Selection Universe" itself, and the refined and filtered "Value Stock Watchlist" would be just another stock picking gadget, easy to slip into like a well worn pair of loafers. This is not your ordinary list of hyped up "story" stocks. It is the result of applying a time tested set of selection rules, concepts, and experiences, to a pre-selected group of securities that are of a known level of quality i. e., Investment Grade only. Here's a fairly comprehensive Question and Answer [more accurately, a Question & Discussion] list that should help you to use the Value Stock Buy List Program productively. Remember, the program is designed to follow the investment process defined and explained in "The Brainwashing of the American Investor". The more times you read it, the better your performance will be. Steve Selengut has been kind enough to answer some questions about his methodology. Here are my questions (and some that he has fielded directly). with his responses. (If you have additional questions, please send them to: brainwashed@optonline.net.)

Speaking of CEFs (Closed End Funds):

Do you have some volume number for CEFs below which you wouldn't purchase one of them?

• No, not really. In Fixed Income CEFs, low volume may be symbolic of the satisfaction of existing shareholders with a steady, dependable cash flow, and not a real shortage of shares. If the price is right, they'll trade. Think about the underlying security... built to hold on to.
• Another reason for lower volume, at this time of year (3rd or 4th Quarter), could be the habit of some CEFs to pay their Capital Gains and/or "special" dividends after January 1st. This is always something to consider, and information that you can ask your broker to investigate.
• On the flip side, it's generally a good time to buy CEFs after all of the irregular dividends have been sent to shareholders,,, theoretically, the prices should be a bit lower. So check the early year volume to get the big picture.
• Here's a rare tax note. When you own CEFs, it's likely that some of the dividends you receive in January will be "booked" as the prior year's income... check with your accountant before you rush to get that 1040 on its way.

How does one determine how much leverage a CEF might be using to boost it's yield?

• Go ETF Connect: http://www.etfconnect.com/education/fundamentals_etf.asp
• Click on "Fund Sponsors" and find the drop down menu on the left side of the page. Scroll down to the appropriate company name and select it. Then locate the symbol of the fund you are researching.
• Finally, scroll down through the Fund details until you locate the information on Preferred Shares and "leverage %".
• Take a look at a dozen or so to get a feel for the "normal" amount of leverage. Note that leverage only sounds like a bad thing. It's an excellent business practice, and one that is used in all fields... not just by investment companies.

The NASDAQ Exclusion Issue:

In the book, you mention that there is no reason why this approach wouldn't work with NASDAQ stocks. Do you ever trade the Investment Grade Issues there?

• In the 25+ years that I've been fine tuning this methodology, I just haven't had the need to go there, although the specific stock selection rules would certainly apply. However, my "Statistics That Matter" are based on the NYSE alone, and I would avoid getting involved in securities that trade within a Market that is generally known as a more aggressive and speculative medium.
• Also, the Brainwashing Book only reasons that the approach should work with NASDAQ stocks. That possibility has never been tested.