A couple weeks ago, I took a trip up to Maryland to visit my publisher, Money Map Press, and attended their annual holiday party.
The party was international themed this year, and quite extravagant if I don't say so myself. I didn't hesitate to take full advantage of more than a few free cocktails at the open bar throughout the night, but I still remember seeing a Chinese dragon and few fan- and umbrella-bearing women dressed in traditional Chinese attire.
Prior to the party, I brought along some copies of Mario Gabelli's book, "Merger Masters: Tales of Arbitrage," and handed them out to my team of editors as little Christmas gifts. If you want to learn a little more about what you can gain from reading the book, including how to make lots of money doing arbitrage, take a look at my most recent article.
And in that same spirit, I want to give all my subscribers a little gift. For those of you who are not already a member of my exclusive HeatSeekers service, I want to pass along a stock recommendation that I'd normally reserve just for members.
I'm talking about a fund run by none other than the famous Mario Gabelli himself, which will allow us to profit regardless of the market direction.
Mario Gabelli is not just a famous value investor who is always on TV and in the Barron's Roundtable every year. He is also one of the best arbitrage traders on the planet. He generates very consistent returns with exceptionally low risk and has done so for decades. Fortunately for us, he has a publicly traded merger arbitrage closed-end fund that we can buy – and that's exactly what I'm recommending.
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Today's pick is the GDL Fund (NYSE: GDL).
This fund, managed by Mr. Gabelli, currently has over $60 million in cash and several deals that will increase his cash stockpile. We will be able to participate in the increased deal flow this year and earn low-risk returns.
Best of all, we get to engage in an arbitrage trade of our own. The GDL Fund is a closed-end fund that currently trades at about an 18% discount to the underlying net asset value. We are paying around $.82 on the dollar for the stock and bonds in the portfolio. We are even paying that same amount for all the cash and Treasury bills held by the fund. It's called closed-end fund arbitrage, and we are taking full advantage.
To make a good thing better, Mr. Gabelli and his management team are well aware that the discount is too large. On Nov. 15, 2018, the fund issued a press release that stated the following:
"The Board of Trustees of The GDL Fund announces that it will evaluate potential strategic alternatives for the Fund including a common share rights offering, common share repurchases, or changes to the distribution policy. The results of the evaluation will be announced promptly after completion, which is expected over the next several weeks. The purpose would be to evaluate ways to enhance participation in what the Board believes to be an attractive environment to invest in merger arbitrage."
And what an opportunity this is! Anything that helps close the discount after we buy in makes us money.
The GDL Fund also pays a regular distribution, and the current yield is 4.36%
As a shareholder of the GDL Fund, you will be co-owners with some of the most brilliant people on Wall Street. Funds associated with 2018's Noble Prize winner, Richard Thaler, own and have been buying more of the GDL. Ruane Cunniff, founded by the late Bill Ruane (who was one of the investors Buffett suggested clients turn to when he closed his original partnership), invests in the fund. Jim Simons at Renaissance Technologies, one of the best quant investors ever with returns north of 40% a year, has been a buyer of the fund. And the smart folks at FPA Capital are shareholders of the fund.
You can pay up to $10.25 for shares of GDL.
Welcome to the arbitrage club!
Action to take: Enter a limit order to buy GDL Fund (NYSE: GDL) at a price up to $10.25 per share.
Dead People Are Making More Money Than You
It was just recently discovered that the Social Security Administration sent more than $40 MILLION in checks to “dead” people.
And another recent audit found that SSA’s government employees had wrongly “rounded out” dollar amounts on financial statements, costing taxpayers over $500 billion.
Now, another huge error has been unearthed: 82% of seniors may be owed money by the SSA.
About the Author
Tim Melvin is an unlikely investment expert by any measure. Raised in the "projects" of Baltimore by a single mother, he never attended college and started out as a door-to-door vacuum salesman. But he knew the real money was in the stock market, so he set sights on investing - and by sheer force of determination, he eventually became a financial advisor to millionaires. Today, after 30 years of managing money for some of the wealthiest people in the world, he draws on his experience to help investors find "unreasonably good" bargain stocks, multiply profits, and build their nest eggs. Tim tirelessly works to find overlooked "hidden gems" in the stock market, drawing on the research of legendary investors like Benjamin Graham, Walter Schloss, and Marty Whitman. He has written and lectured extensively on the markets, with work appearing on Benzinga, Real Money, Daily Speculations, and more. He has published several books in the "Little Book of" Investment Series and a "Junior Chamber Course" geared towards young adults that teaches Graham's principles and techniques to a new generation of investors. Today, he serves as the Special Situations Strategist at Money Morning and the editor of Peak Yield Investor.