I previously wrote about Central Securities Corporation on March 16, 2011. This is a closed end fund traded on the Amex under the symbol CET. The fund was launched on October 1, 1929 and has been managed by Wilmot H. Kidd since 1973. It sells at a substantial discount from net asset value because it has a concentration of assets in a privately held insurance company and also carries substantial unrealized capital gains.
This is reflected in its continued discount from net asset value, which as of February 17, 2012, has been as follows:
Current | 16.74% |
10 Year Average | 14.753% |
5 Year Average | 15.880% |
Year to Date Average | 17.100% |
Returns over the past 25 years have been pretty good. The following is a table from page 4 of CET's latest annual report, as of December 31, 2011:
Net Asset Value Return | Market Return | S & P 500 Index | |
1 Year | .18% | (2.50%) | 2.11% |
5 Year | 3.17% | 1.72% | (.25%) |
10 Year | 5.99% | 5.22% | 2.92% |
15 Year | 8.46% | 7.30% | 5.45% |
20 year | 12.75% | 13.02% | 7.80% |
25 Year | 12.06% | 11.77% | 9.26% |
$10,000 over 25 Years | $172,461 | $161,578 | %91,943 |
As of December 31, 2011, CET had net assets of $574,187,941 of which 1.3% was in short term assets. It uses no leverage. CET does have a $25,000,000 line of credit with UMB Bank and did have average borrowings of $2,750,000. CET has a history of low operating expenses as well as low turnover. The per share operating ratios for the past five years are as follows:
2011 | 2010 | 2009 | 2008 | 2007 | |
Expense ratio | .71% | .78% | .91% | .66% | .59% |
Net Income | 1.62% | 1.92% | 1.49% | 1.43% | 1.21% |
Portfolio Turnover | 8.07% | 6.67% | 7.94% | 11.04% | 19.58% |
CET's ten largest holdings, constitute the bulk of its assets and have been held for long periods of time, with varying degrees of success. Its largest holding, The Plymouth Rock Company, an automobile and homeowner insurance company constitutes 29.2% of its assets as of December 31, 2011 and is privately held. These assets are as follows:
Cost (Millions) | Markt Value (Mil.) | % of Assets | Year Acquired | |
Plymouth Rock | 2.2 | 167.8 | 29.2 | 1982 |
Coherent | 22 | 41.9 | 7.3 | 2007 |
Intel | 16.3 | 36.4 | 6.3 | 1986 |
Analog Devices | 10.9 | 25.8 | 4.5 | 1987 |
CEVA | 9.2 | 25.7 | 4.5 | 2009 |
Agilent Technologies | 15.4 | 24.5 | 4.3 | 2005 |
Brady Corporation | 2.0 | 23.4 | 4.1 | 1984 |
Convergys | 24.8 | 21.7 | 3.8 | 1998 |
Bank of New York Mellon | 18.3 | 18.4 | 3.2 | 1993 |
Precision Castparts | 10.0 | 16.5 | 2.9 | 2008 |
Plymouth Rock hires Shields & Company, a respected Boston investment bank, to make an appraisal of its shares each year. In 1996 the shares were valued at $760 each and this had risen to $3628 as of 2010. Shields gives a blanket 20% discount for lack of marketability, which brings its 2010 value to $ 2,900 a share. CET went even further and gives the shares a one-third liquidity discount and values them at $2,400 a share. Additional icing is added to the cake by the fact that CET sells at a discount to its net asset value in excess of 15%. This means that in 2010 when you purchased CET you got Plymouth Rock at $2,040 a share, even though the shares were appraised for $3,638 a share. This is none too shabby.
Plymouth Rock has a web site and I recommend that all potential investors read the Chairman's annual letter. It is obvious that Plymouth Rock is a conservative well run auto and homeowner's insurance carrier and the Chairman is not shy about talking what went good and what went bad. The following is a breakdown of Plymouth Rock, per share, for the past 5 years:
Net Income | Dividends | Book Value | |
2006 | $295.70 | $59.79 | $1,358.14 |
2007 | $198.98 | $71.99 | $1,514.20 |
2008 | $196.08 | $84.76 | $1,543.30 |
2009 | $281.47 | $84.88 | $1,816.43 |
2010 | $240.29 | $136.12 | $1,950.66 |
I love the idea that over 43% of the outstanding shares are owned by controlling persons, as follows:
Christian A. Johnson Endeavor Foundation | 32.8% |
All Directors and Officers | 12.3% |
Mrs. Wilmot H. Kidd who own 11.4% of the outstanding stock of CET is the president and Trustee of the Foundation. Wilmot H. Kidd has been running CET nearly all his entire adult life.
I do not expect there to be any corporate changes or actions in the immediate future to instantly enhance the value of CET and reduce its discount. I suspect that CET will continue as it always has for the foreseeable future. I approve and laud their approach and only hope they continue in this direction. I think CET should be a part of everyone's portfolio. It is truly a good investment.
Disclosure: I am long CET.
