Mutual Funds
Doing One Thing Well
General American Investors manages GAI, period. One of the original closed-end funds, GAI has harvested an outstanding record for nearly 80 years. Learn how manager Spencer Davidson does it.
By Manuel Schiffres, Executive Editor
From Kiplinger's Personal Finance magazine, March 2006
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Let's turn to General American's structure. You're allowed to leverage your assets? Yes, we have issued $200 million worth of preferred stock with a 5.95% coupon. It trades on the New York Stock Exchange and is rated AAA.
So in essence you've borrowed that money and invested it. Yes, we are effectively 115% invested.
Was your ability to sell stocks short a major reason General American held up as well as it did in the first two years of the bear market, gaining 20% on assets in 2000 and losing just 2% in 2001? Yes. There was a sense that things were getting out of hand with tech stocks, and we just said, "Enough is enough."
Do you currently have any short positions? No.
Your third-quarter shareholder report indicates that you sold call options on the shares of Devon Energy in your portfolio. This was an effort to get a better price for an energy stock that had grown to 6% of our portfolio. We ended up buying back the calls and realizing a short-term loss, then using that loss to offset short-term gains that arose when another energy-stock holding, Unocal, was taken over.
You also hold shares in something called Silicon Genesis, which doesn't seem to be publicly traded. We are permitted to invest in nonpublic companies. When the bubble broke, we still had two tech analysts. They didn't have a lot to do, and I foolishly thought that there might be some opportunities in the private market. So we put a total of $6 million into two private placements, neither of which has panned out and neither of which is reflected as an asset in our net asset value.
Have you ever thought of expanding your empire by, say, launching a series of open-end funds? No, although it would not be a difficult thing to do: Spin off a management company, promote our record, give the executives -- that is, me -- a lot of stock in it, and then go raise a couple of billion dollars. We will continue to approach our jobs the old-fashioned way. We make plenty of dough. Our assets are large enough to support a very serious, very rigorous research effort, and the proof is in the pudding.
TOP TEN: General American
These are General American Investors' ten biggest holdings as of September 30, 2005.
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