Join Steven Pesavento as he interviews veteran investment professional Steve Selengut. With nearly 50 years of experience, Steve shares his insights on how to create consistent income through closed-end funds (CEFs). Discover how these unique investment vehicles can generate steady cash flow, even in volatile markets. Learn about their advantages, including leverage and high-income distributions, and find out how they fit into a diversified investment strategy.
Key Takeaways
Resources Mentioned
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About our Guest:
Steve Selengut is a seasoned investment professional with almost 50 years of experience in the industry. He specializes in income-focused investing, particularly with closed-end funds, and has recently published a book detailing his approach. Having built and sold a successful investment advisory firm, Steve continues to share his knowledge and expertise with a new generation of investors, offering practical advice on creating reliable income streams from the stock market.
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00;00;00;18 - 00;00;09;24
Steven Pesavento
Welcome back to the Investor Mindset Show. I'm your host Steven Bento. And today I've got Steve selling got in the studio. How are you doing today Steve.
00;00;09;26 - 00;00;11;27
Steve Selengut
doing real well. Thank you.
00;00;11;29 - 00;00;35;04
Steven Pesavento
Well, I'm excited to talk with you because you're 79 going on 80. You've been an investment professional for nearly 50 years, and you just released a book sharing all the details of your income investing strategy program. So I'm I'm excited to get into it because you've been doing something that I haven't heard that, much talked about, but it's a really cool strategy.
00;00;35;04 - 00;00;50;09
Steven Pesavento
And so before we get into that strategy and some of your background or how you got here, I want to start all the way by looking back at your childhood. What what events or influences from your childhood shaped who you are today? Steve.
00;00;50;12 - 00;01;23;01
Steve Selengut
Oh, geez. it's probably, it might have been later, but my childhood and the way I got into thinking about money and investing and stuff like that was pretty much the fault of, my dad, who was a real estate investor. And he was a builder and developer and, we lived on a place called Lake Kong in northwest Jersey, and he was one of the first developers there.
00;01;23;04 - 00;02;02;07
Steve Selengut
in the 50s he started that's about the time we moved out there that I moved out there. I was about five, but, what he what he developed there was what you would call a vertically, vertically integrated operation, meaning he owned things from the lumber yards where he bought materials to the land he, financed the homes he built for the people, took back the mortgages and insured them, you know, and, later on, when I got into college and I started reading about vertical integration.
00;02;02;08 - 00;02;24;21
Steve Selengut
Oh, yeah, that's what he did. You know, he used to. But what he did for me and my I used to do things like, lawns and teach water skiing and things like that. But what he made me do was put away a little bit of that 25%, to be exact, in a savings account and start seeing the interest.
00;02;24;21 - 00;02;51;27
Steve Selengut
He wanted me to look at that and understand that these guys are paying you money for your money. They're holding your money and they're paying you for it. And the income you're getting looks like it's peanuts now. But if you just think about how that will grow over time, when you do that, and on a larger scale, as you start to have a profession like I have, you'll be able to put lots of money back to work in different ways to generate more.
00;02;52;00 - 00;03;13;13
Steve Selengut
So it got to the point that, you know, eventually, eventually, I was hooked on the idea of of making money. And I've been that investing it like and right into college. I mean, you know, fraternities and sororities and how does Steve make more money? He was pretty much the mindset.
00;03;13;16 - 00;03;38;01
Steven Pesavento
And I think it's so cool because by seeing the, the, the perspective of real estate investor, somebody who is operating a full business from top to bottom, they've got all these individual pieces, they're making money all along the way. But then on top of it, they've got this consistent income stream coming off the properties, coming off the mortgages, coming off the operations of the business.
00;03;38;01 - 00;04;00;10
Steven Pesavento
So you're seeing the power of having that income and you're learning very early that that's really important. And then I know you you pivoted away from real estate. You started focusing specifically on investing in the markets. And what I think is so interesting is, you know, you just sold your practice. You're going on 80. You look like you're 65 or less.
00;04;00;12 - 00;04;23;07
Steven Pesavento
we got to talk about some of those secrets at some point. But the the fascinating thing to me is that you were an advisor, you sold your practice, had 100 million of AUM or more, and you were creating six, eight, 10% income streams for people while investing in the public markets. And that's something that's so far off for me because, you know, I run a real estate, private equity firm.
00;04;23;10 - 00;04;44;06
Steven Pesavento
We invest, we're creating big returns on exits, and we're creating, you know, great cash flow on the properties. But being able to create that kind of return in the stock market from an income standpoint is something that seems so far off to me. So tell me about this vision and this this target of income over market value and how that leads you down this path.
00;04;44;10 - 00;05;06;09
Steve Selengut
Well, the well, the income, I think, everybody has that need for income. You know, they, they want to have we lived on a lake. We had to have a boat. We had to have this. We had to do that. depending on who you're married to, they have different needs from recreation to dressing to entertainment and all these other things.
00;05;06;09 - 00;05;24;26
Steve Selengut
And if you want to, you want to really live life. And I had a pretty good example from my parents because they live pretty well and they traveled a lot, and I wanted to do that too. They took me and my wife was them occasionally. So we we developed this bug for traveling. And you just can't do that without significant cash flow.
00;05;24;29 - 00;05;52;25
Steve Selengut
So as soon as I got involved, as soon as I got my hands on that first pile of money, I was very fortunate. I had chosen chose my parents well, as they say. So, when I got out of college, when I got to be 25, I got to take over what he had, put together, both from my little bit of contributions, from what was left over from my college fund, and I was given the reins.
00;05;52;27 - 00;06;11;16
Steve Selengut
And, when you give something like that, the first thing's on your mind. You sure don't want to lose it. So I was looking at safety, you know, my my broker's name was Rita Rita Acres. In fact. And, she and I went, and I said, I want to I want to grow it, but I don't want to take risks.
00;06;11;16 - 00;06;39;06
Steve Selengut
Big risks. I've already got this. This is pretty substantial. And, I want to generate income from it so that within X years, I can thumb my nose at my employers and be independent with the income and maybe do something on my own, start my own gig of some kind. I sure, I sure didn't want to go into real estate because that was a seven day a week job.
00;06;39;09 - 00;07;04;22
Steve Selengut
And as it turns out, so is money management. But I didn't know that at the time anyway. So that's, you know, that's how the income focus got there. I had a goal in mind. I wanted to get out. I'm commuting to New York. It's not fun from North Jersey, particularly in the winter. I remember being trapped outside a giant stadium for hours, you know, sitting in traffic while they tried to clear the snow and the accidents and all that stuff.
00;07;04;22 - 00;07;07;23
Steve Selengut
You never know when you're going to get home. But anyway, well.
00;07;07;26 - 00;07;31;22
Steven Pesavento
There's a concept I talk about which is called Name Your Number. It's all about understanding what is that amount of money you need to earn consistently, passively, every single month to live the life you want to live. And and there's so many different ways to do that. But one of the ways that you've been able to do that and do that for your clients is by focusing on what are called closing funds.
00;07;31;24 - 00;08;02;16
Steven Pesavento
And I don't think a lot of people know about them. And obviously there's only a couple hundred of them available at any given time to invest in. But let's dive into that strategy and let's break it down first into what they are. And then let's talk about where the advantage is, because there's some technical information here that's going to be really valuable for people to be aware of, because at the end of the day, the reason Duby be an investor is to be able to create that consistent income that you can count on and this is one strategy.
00;08;02;18 - 00;08;36;02
Steve Selengut
Well, yeah. See, ifs are unique. I didn't really discover them. It was almost accidental that I discovered them. I mainly a stock market person, but I always a dividend stock person from what my father had told me, never put your money with anybody that's not giving you something in return. And dividends work. Two things. I mean, they gave you something else to reinvest, and it was a, an easy way to determine if a company was in trouble or not, because if they cut their dividend, you knew there was something wrong upstairs, you know?
00;08;36;05 - 00;08;59;16
Steve Selengut
So I always started with dividend stocks and what I thought was a dividend stock. A couple of them turned out to be closed. And folks, because they trade like stocks. But their income was attractive to me, particularly one called Petroleum and Resources, which used to pay huge, huge distributions at the end of the year, you know. But anyway, income was my focus, like you said.
00;08;59;21 - 00;09;28;22
Steve Selengut
And I discovered I backed into CFS. And then in about after 2000, I really started picking up on, the income variety of closed end funds because what they did and this is an important key element of closed end funds. They own corporate bonds, treasuries, preferred stocks, for example. And these are very illiquid when you deal with them individually as I always had.
00;09;28;24 - 00;09;52;16
Steve Selengut
And there are markups associated when you trade bonds, you know the broker gets a percentage each way and things like that. But with closing funds you've got hundreds and hundreds of bonds in one portfolio that you can trade like a stock. So you're trading you have liquidity in an illiquid market. and the things are paying a much higher rate of income.
00;09;52;16 - 00;10;19;14
Steve Selengut
Now back to what's their difference there. The biggest difference is a closed end fund is a trust. It's a pass through trust. So their objective has to be production of income for their shareholders because they have to they have to throw out all the in them. They can't reinvest their income like an Amazon or or a Microsoft or an Exxon.
00;10;19;18 - 00;10;40;18
Steve Selengut
They can't go out and build another plant, you know, or do anything like that. They have they have to give it back. So their goal has to be to grow the income production that they have in hand. I mean, that's that's their factory. So, so that's the main attraction closed and funds, they don't have anything else on their mind.
00;10;40;18 - 00;11;03;17
Steve Selengut
They don't care about growing their market value or their, you know, their their net asset value. Yeah. They're, they're, they're concerned about getting you income. And that's why they were so attractive to me because they contained everything else. I could imagine every common stock, every hero you hear about your Nvidia. And now that it's the big deal or Amazon, it's all in there.
00;11;03;17 - 00;11;35;09
Steve Selengut
And the equity closed end funds contain hundreds and hundreds of stocks. So you still own everything. It's all the same stuff. people talk about gold. You can buy closed end funds that invest in gold, real estate, lots of different real estate type investments, both, you know, both for land and development and for rental type properties, you know, so they're just a package that you can do all that in and develop a diversified portfolio, no matter how much money you have to invest.
00;11;35;09 - 00;11;44;14
Steve Selengut
Even my smallest clients could have a piece of the action, you know, a $30,000 portfolio can. I can own every stock in the New York Stock Exchange.
00;11;44;17 - 00;12;09;03
Steven Pesavento
So what's so cool about this? Just to underline it, it's a trust that's essentially a vehicle they IPO. So they sell a fixed number of shares. And then they go out and they go and buy equities bonds whatever it is. But they have to distribute that dividend or that interest from the bond. At the end of the year, 95% of it has to go back to the shareholders.
00;12;09;08 - 00;12;26;04
Steven Pesavento
And then the way they earn money is they get a small percentage, 1 to 5% of the income that's distributed. So they're they're actively focused on and they're they're, incentives are aligned to distribute as much income as possible.
00;12;26;08 - 00;12;57;12
Steve Selengut
Right. They're focused their fees are higher than mutual funds and ETFs. maybe even hire some in some financial advisory firms. But but the the customer the shareholder doesn't pay any of those. The, the returns, the interest, the dividends they get. After all the expenses are covered, you know, so, yeah, they're expensive and they don't meet the requirements of four for one K investing as set out by Finra and so on.
00;12;57;14 - 00;13;15;17
Steve Selengut
And they don't have as many, but and I don't know if this is a drawback or a benefit, but they don't have as many shares on the market as the other ones do. So they become more volatile and I know volatility scares a lot of people. But but I see volatility is opportunity.
00;13;15;19 - 00;13;48;13
Steven Pesavento
you know so let's get into the the volatility in just a second. But just to kind of underline this thing. So these closed end funds are creating between you know, six eight 1,012% distributions every single month, quarter or a year. They are very much similar to an ETF or a mutual fund, except that they have the ability to take on leverage so they can actually buy more of that with the with the incentive of of using that to create more income.
00;13;48;16 - 00;14;07;23
Steven Pesavento
And they the other thing that you mentioned was that they trade at book value instead of market value. So there aren't mark to market automatically, which is where that volatility piece comes in, where you can buy something at a discount. And then sell it and create additional, capital gains. Is that right?
00;14;07;25 - 00;14;28;00
Steve Selengut
yeah. the, the, the ability to make a profit doesn't just come from buying it at a discount to its net asset value, because, sure, its net asset value is separate from the price. Price operates like a stock, you know, so you can buy at a premium and still sell it at a higher price later on.
00;14;28;00 - 00;14;50;26
Steve Selengut
Yeah. I mean, so, that but yeah, you know, you got it. That's, that's the way it operates. It's similar to the other two. it trades every day. So that makes it a little different than the mutual fund. it's got much fewer shares because it doesn't manufacture them on demand like the other two do. You know.
00;14;50;29 - 00;15;11;11
Steve Selengut
so they don't have to buy, you know, they don't have to sell shares either. And, I was just reading that, a question on Google that one of the advantages is in a market where, the managers of a mutual fund have to sell shares because people want their money back when they want to sell their units.
00;15;11;13 - 00;15;33;05
Steve Selengut
a closed end fund manager doesn't have to do that because they're trading. The stock is traded between you and me, not you and the fund, you know? So it's it's, you know, it's a lot. It's really it's kind of differences, but it's really a simpler tool than the others. And it's, I find it simpler anyway.
00;15;33;08 - 00;15;55;20
Steven Pesavento
Well, so things there's two things. When it comes to closing funds, I think people without deep knowledge might throw a flag up and say, hey, I don't I don't know about this. The first would be the fact that they use leverage, and there's a belief that maybe that creates some kind of a strong additional risk. And the second would be that their fees are higher than an index or a mutual fund.
00;15;55;20 - 00;16;03;11
Steven Pesavento
So let's break both of those down and talk about the advantages and disadvantages of leverage. And let's talk about those fees.
00;16;03;13 - 00;16;27;00
Steve Selengut
Well let's talk about leverage. You know, for what it is. you're a real estate developer. Yeah. Nobody goes out and spends $20 million on a tract of land out of their pocket. They borrow money from a bank. It's only called leverage when they talk about closed down funds. But that's leverage to all. Leverage is is buying to run your operation.
00;16;27;03 - 00;16;51;14
Steve Selengut
if you're into rental properties, you buy something with a loan, but you know that you're going to get this much rent and you're going to take care of all the expenses. The same thing goes with a manager who's running, a fund of securities where he invests in things. If he can borrow money at 2% and reinvested at 4%, that makes it a good deal.
00;16;51;16 - 00;17;15;27
Steve Selengut
when interest rates were near zero, how many? How many of us went out and took one of those? loans? You know, those additional loans against your your property because you could borrow money at 2.5%. And I, for me, I mean, you could have even invested in dividend stocks at more than 2.5%. So it was like found money.
00;17;15;27 - 00;17;38;13
Steve Selengut
It was easy. It was a way of doing business. And how many corporations out there operate without leverage? They don't call it leverage. They call it liabilities. They call it loans. They call it debt. All leverage is is that simple debt. It's just like you going out to borrow money to buy a car. You know, just it's the same principle.
00;17;38;15 - 00;17;49;11
Steven Pesavento
It has a huge advantage because it allows you to increase the rate of return because you're buying more of what that asset is, but kind of talk a little bit about that and, and what kind of leverage they typically use.
00;17;49;14 - 00;18;08;16
Steve Selengut
That's exactly they take they use two types. Basically they sell preferred shares, which, you know, they're going to be out there for a long time. They let's say they sell them at 4%. You know, they have that money to put to work at above 4%. And of course, if the market's at 0%, they don't sell a preferred at 4%.
00;18;08;16 - 00;18;32;25
Steve Selengut
Right. So you know, it's that type of thing. You exactly what you said. If I own a 100 different stocks for these particular shareholders with the money that they invested, I then go out and say to the bank, hey, I've got this. You know, 400 million in capital here. I can borrow up to 200 million, but I'm only going to borrow 100 million from you.
00;18;32;27 - 00;18;55;29
Steve Selengut
I'm going to take that hundred million. I'm going to add that to my pile of securities. So my shareholders are getting distributions on, on not only on what was purchased with their money, but was purchased with the borrowed money well as well. So it's exactly what you said. The cash flow of the fund increases and they have to pay out 95% of that to me.
00;18;56;02 - 00;19;29;17
Steve Selengut
So it's that's what leverage is all about. It's a loan like any other business anywhere would do. It's nothing to be afraid of. It's not a margin loan. I think a lot of people and I, I'm not pointing fingers at investment advisors or brokers or people like that. I think a lot of people allow individuals to think that these are loans against the securities in the in the fund that the trust manages, and they're not.
00;19;29;20 - 00;19;53;12
Steven Pesavento
I think that's a really important thing to underline because the the concern people have is that, oh well hey what happens if the value of those shares go down and that leverage is going to get called back. And there's some kind of issue. But they're taking long term. They're taking short term loans. But short term loans in this case are two three 4 or 5 six year loans, not 10 or 20 year loans.
00;19;53;14 - 00;20;19;19
Steven Pesavento
And and by the best example, I can, that I've heard you talk about is that if you bought a portfolio and it was creating a 4% dividend and you put 40%, of the you put 40% leverage on, meaning you put 40% of new money in and you bought those exact same things that 4% dividend now turns into six.
00;20;19;21 - 00;20;41;21
Steven Pesavento
Now, maybe you got to pay a little bit of money in interest, but you've just increased the dividend. And that's how you can get well outside of the range that you typically see. So that's really, really powerful. And it seems like a no brainer because these people are incentivized because the fees they make are only based on the income that's distributed.
00;20;41;24 - 00;20;48;29
Steven Pesavento
But when it does come to those fees, what's the pushback that you hear? And how do you speak to that pushback around fees?
00;20;48;29 - 00;21;09;13
Steve Selengut
I think the fees are are AUM just like normal fees? I don't think they're based on the income, okay? They're based on the market value. I'm pretty sure, you know, I really I'm not sure I ever really looked at that, but I'm pretty sure they're normal that in that manner. But but that comes out of the overall pot and it doesn't.
00;21;09;16 - 00;21;40;02
Steve Selengut
No. No shareholder, no client of mine ever saw a bill from any of those close end funds for any fees. The the returns, the dividends, the distributions. We're always after fees. So they're really not important. It's the, you know, like I used to criticize the, the government in their regulation of for one case where they say you can't, you know, you can't have fees over 1% or 1.5% or something like that.
00;21;40;05 - 00;21;58;20
Steve Selengut
So you have Vanguard who has all these, you know, 0.4%, 0.04% fees and so on, and they're paying you 4%. So I say, you know what's better? 4% after a little fee or 8% after a big fee? I mean, give me a break. Yeah. So yeah, this is.
00;21;58;22 - 00;21;59;21
Steven Pesavento
So that's a good thing.
00;21;59;22 - 00;22;02;17
Steve Selengut
That's that's really that big a deal.
00;22;02;19 - 00;22;13;27
Steven Pesavento
it's a good thing to underline that when they're, when they're looking at this, it's the, the distribution is net of fees. So if you're getting 8%, there's no additional fees coming from that CEF.
00;22;14;00 - 00;22;35;08
Steve Selengut
And even when we were managing money when I was a professional and I was charging a thing so they would have me to pay, and if I were getting a, 1.4% when I used to tell them was very simple. I said, you know, my goal, my goal here is to make you more in capital gains than you pay me in fees.
00;22;35;11 - 00;23;10;03
Steve Selengut
And it's not difficult with the volatility of these things to literally, in 2021, we made the same mountain distributions as we did in capital gains. Wow. Or capital gains the same as distributions. That's never that had never happened before. 2021 was a really amazing year. But I can tell you honestly that so far this year I've already made in capital gains in my own account the equivalent of two two months total dividends.
00;23;10;06 - 00;23;15;06
Steve Selengut
so my year this year is going to be at least 14 months long financial.
00;23;15;09 - 00;23;41;26
Steven Pesavento
Yeah. That's huge. You know, that's really huge. And so I think there's something where it's like it, I'm wondering and I'm sure listeners are wondering as well, it's like this makes a lot of sense. We're going to create a very strong income. It's going to be net. We want to build up our income stream. So obviously you had a firm, you were doing this actively, and you've put out this book where people can learn it themselves.
00;23;41;26 - 00;24;03;11
Steven Pesavento
And you advise some people and in a one off way to help them get there. But for the people who are listening, who want to start diving into this deeper, how do they start doing due diligence? And nothing we're going to talk about today is financial advice. But how do they start doing due diligence and finding those right opportunities for the income side?
00;24;03;11 - 00;24;06;10
Steven Pesavento
Let alone the potential capital gain they could earn?
00;24;06;10 - 00;24;36;21
Steve Selengut
Right? It's the there are a couple websites. The one I use for my research is called CEF connect, and it, it has probably around 400 or so, closed end funds of all types taxable, taxable income, tax free income and equity and combinations. You know, there are mixed there are mixed animals out there too. And they can screen them in many, many different ways on that website.
00;24;36;22 - 00;25;15;12
Steve Selengut
Look at their yields, look inside, see what kind of securities are inside. how concentrated it is in any, the first top ten, numbers, you can look and see how many secure, I send out or any securities inside. You can see how long it's paid, it's dividends and how consistent that's been. And have they moved in sync with if there's a market or the history of interest rates and they do move more, along with interest rates than they really do with the stock market, because they're what we call and I field interest rate sensitive securities, just like mortgages.
00;25;15;12 - 00;26;01;10
Steve Selengut
And, even utility stocks are in that same category. So this CEF connect, it has, some educational information in there that you can look at. You can find out what they think, what they say about both, leverage and return of capital and their fees and charges. there are probably 60 different financial institutions that provide, closed end funds to the public, but you almost never if ever, hear an advertisement from a Blackstone or, or a Blackrock or Nuveen or Eaton, Vance or Gabelli, any of those, even though they're, they are big players in it.
00;26;01;12 - 00;26;40;10
Steve Selengut
And why that is exactly. I'm not totally sure. I'm pretty sure I understand why they're not popular with the financial community in general, and it's probably because of this interest rate sensitivity. there's two reasons. if you were a if you were Amazon or Exxon or any of the big type of companies like that, and your structure made use, give away, reimburse your, your shareholders 95% of anything you made.
00;26;40;13 - 00;27;10;17
Steve Selengut
You wouldn't be able to grow your business. You wouldn't be able to grow your net asset value. these securities are not designed to compete with mutual funds or ETFs or even individual stocks because they have that limitation. Their earnings are going back to their shareholders. I think a lot of us would like to see a world where the corporations of the world pay a little bit more respect to their shareholders, but I don't think we'll ever see that.
00;27;10;19 - 00;27;13;17
Steve Selengut
So this is the opportunity to get that.
00;27;13;19 - 00;27;38;27
Steven Pesavento
So you you can go to C.F. connect. You can do some research. You start looking at what the dividend is, what kind of assets are being owned by it. What's their leverage. What are their fees. What is that distribution look like. to you. but what else can somebody do? And what are the things that you look for that allow you to make a decision saying, hey, this seems like something that's good.
00;27;38;27 - 00;27;53;27
Steven Pesavento
Now you are an active trader, meaning you're taking profits when they're available. But what's what is it that you're looking for in order to do that? And what would someone look for if they were more interested in in just, a buy and hold strategy, whether you agree with it or not?
00;27;53;29 - 00;28;22;13
Steve Selengut
Okay. just like and really these four things I'm going to mention, and, and I am I'm really a low risk if you, if there is such a thing as a low risk trader. I mean, I don't feel that I'm, I'm trading actively, but I don't think on trading risky type securities. Yeah. And and and the way I determine that and I've done I did pretty much the same for I call them the four pillars of risk minimization.
00;28;22;15 - 00;28;49;20
Steve Selengut
I did exactly the same thing with individual common stocks when I was growing up in the in the field, the first thing is quality. The first thing you look at in any securities, the quality and some of the things that I use to judge qualities in a see, it's how long it's been in business. I don't I don't own any or at least very, very few that have not been in existence at least five years.
00;28;49;23 - 00;29;23;06
Steve Selengut
I don't I obviously I don't buy any, no equity fund that pays less than 5%. No, no taxable income under pays less than 6%. they must be diversified inside. They have to own at least 50 different companies or 50 different bonds or 50 different preferred stocks inside the average. In the, selection universes that I have are, you know, over 300 in the income side and over 200 in the equity side, different, different issues inside.
00;29;23;08 - 00;29;44;00
Steve Selengut
So that's a big key. So so those are the things how long how how big is this company. How many other closed influence do they have. Are they a big operator in the field. you know, the the profitability of the the companies are the same as you can judge out by the distributions of the, of DCF.
00;29;44;00 - 00;30;14;25
Steve Selengut
So I look at the quality of the company, the quality of the ownership, the quality of the cash flow. I then the second one is the diversification within the security, just like a, a multinational company in multi and in many industries or many sectors is safer equity bet than somebody who's got one little, you know, the guy who produces buggy whips and that was it.
00;30;14;27 - 00;30;35;22
Steve Selengut
You know, you know the first car gets developed and he's out of business. And it's the same for any big company. You don't want him to be a, you know, one show pony like like like that. So diversification inside the fund is important just as it is in the portfolio itself. The next one is income generation, which I mentioned.
00;30;35;24 - 00;31;09;14
Steve Selengut
And the third one for risk minimization is profit taking. And because. So I look at what I want to see in one of these funds, I want to see extreme volatility within a range. and you know, if you look at a chart over the last 20 years, you can see the trading range with the in these things is very narrow because they, they, they move in price relative to changes in interest rates, more so than changes to the, in the stock market.
00;31;09;16 - 00;31;28;27
Steve Selengut
And that's true of the equities too, because when the stock market goes up, these guys are a little bit different. They take profits rather than the buy and hold is holding on to the good ones getting rid of the bad ones. There's one famous manager who says, keep your winners and sell, sell your losers and let your profits run.
00;31;28;29 - 00;31;53;01
Steve Selengut
And that kind of gets you to zero in an extended correction, doesn't it? But that's that's the attitude on Wall Street is that you, you every anything it doesn't go up in price. It's automatically a loser. you have to look at things with a different purpose when you're dealing with closed down funds, because their purpose is really income generation, not market value growth.
00;31;53;04 - 00;32;23;21
Steve Selengut
So as long as they're producing, it doesn't matter to me really which way they go in the way of price. historically, they stay in a pretty, pretty distinct range. So, I think that's answered the question. Those are the for me, those are the four things you gotta look at in any type of investment, be it a real estate investment trust, a BDC, a master limited partnership, ETFs, everything you buy no matter what.
00;32;23;24 - 00;32;47;02
Steve Selengut
You gotta check the quality. You gotta stay diversified. You got to have income. And one of the things that I add that most people don't, you got to take your profits because we've all seen them disappear almost overnight, I think. I think March of 2020 is the biggest example, where we had a huge correction that lasted two months and it was it was gone.
00;32;47;10 - 00;32;53;18
Steve Selengut
But the panic that existed for those two months was very, very real. Most corrections take a little longer than that.
00;32;53;20 - 00;32;56;18
Steven Pesavento
Yeah. That was a very, very fast moving yes.
00;32;56;20 - 00;32;56;24
Steve Selengut
Yeah.
00;32;56;26 - 00;33;23;28
Steven Pesavento
Moving moving action. And so the the bottom line about these closed end funds and right, you don't run one, but you were running, an investment firm. And this was one of your key strategies. But one of the, the, the big things about closed end funds is that you're looking specifically for income generation, and you're looking for income generation that's higher at a higher percentage per year than what you were going to get.
00;33;23;28 - 00;33;43;20
Steven Pesavento
If you were going to go buy those individual securities on your own. And you don't have to be actively managing, there's a huge opportunity. It sounds like if you are willing to learn the strategies about how to pick them and understand what their value is, that you can actually create even more capital gains by moving money between different ones.
00;33;43;27 - 00;33;53;15
Steven Pesavento
But at the end of the day, you can create an income stream that you can live off of. And, it's, at a much higher rate than you would in the traditional market.
00;33;53;20 - 00;34;18;04
Steve Selengut
That's absolutely correct. There are, there are there are three streams of income that people have in business. The distributions from their assets, the capital gains that they can generate by selling those assets and buying them back again. And then there's always if you're lucky, you get that rich uncle that sends you money every now.
00;34;18;06 - 00;34;38;27
Steven Pesavento
We all don't have that rich uncle. So we better rely on those first two. So, Steve, what I'm curious about is you're at kind of a different chapter of your life. You just sold your company. You just came out with the book, you know, retirement money secrets. You guys can buy it on Amazon. Absolutely recommend you guys get a copy if you want to learn about this.
00;34;38;29 - 00;34;46;14
Steven Pesavento
but you're at you're you're kind of at a new phase. And so what was it that drove you to put this information into a book?
00;34;46;17 - 00;35;11;09
Steve Selengut
It's, I don't I've had a history of writing articles about a lot of these things, and I, I did I had one I had one book out before, called The Brainwashing The American Investor, and it was more of a, a textbook type thing where I explained bonds, I explained stocks, like, you know, I explained my process and things like that.
00;35;11;09 - 00;35;47;01
Steve Selengut
And most of that hasn't changed, but this one is more focused on the on income, through you, through the use of closed end funds and through the trading of closed end funds. And, I don't know, I just feel like, you know, I've had probably 200, 250 clients over the course of my career. So I've touched a number of lives and and most of my clients, my old clients are still with the with the firm I left and are still there, and they're happy and they're still getting good income.
00;35;47;03 - 00;36;05;14
Steve Selengut
But it's a really small number of people that know about this. I mean, I mean, one guy say, you know, I just talked to my banker today and I told him I started doing this and closed down funds. And he said, what with what you know, people don't know they exist. They are the oldest funds, security on the planet.
00;36;05;16 - 00;36;40;12
Steve Selengut
They are around before mutual funds were. I didn't know it either. I mean, you know, in, in, in these tests that I had to pass to become an area, there was not one question about closed end funds or that they even existed. And and, and people, people just haven't been schooled on what they are. So, so I my, my goal in, in the remaining years of doing this is to help a lot, help as many people as possible.
00;36;40;15 - 00;37;04;13
Steve Selengut
learn about them, start to use them and spread the word about them. I mean, I've sold a bunch of books and I've, I've spoken to I've probably influenced about 100 people so far, and that's a short period. So if I can keep it that pace, more than more than do what I did by managing the money individually.
00;37;04;16 - 00;37;21;01
Steven Pesavento
Yeah. Think about the compounding effect of being able to put the information out in a public format, be able to teach people, obviously, you know, you've made your money cut all of this, income coming in off your own closed end funds so you able to pass something along to the next generation? I think it's a beautiful thing.
00;37;21;06 - 00;37;29;12
Steven Pesavento
So I've got one more question before we wrap up. Why don't you share with folks where they can follow you or where they. That is the best place to get a copy of the book.
00;37;29;12 - 00;37;56;22
Steve Selengut
Well, the best the best place to get a copy, of course, is Amazon, although a lot of people would prefer using Apple or, even Barnes and Noble and stuff. It's available everywhere in both e-book, e-book, hard hardcover and, paperback. So you can you can get it anywhere. It it's not an audio yet, but we're talking about it.
00;37;56;25 - 00;38;22;22
Steve Selengut
it's it's tough because it's a conversation with me, a couple other people, and there's a Q and A with a Facebook group and all these graphs and charts. How do you do that in audio, I don't know. Anyway, so so that's where you can get the book. And I think that would be, you'd learn something from it at least you, you'd make, you'd make at least the $20 you paid for the book if you read it and do something, anything.
00;38;22;24 - 00;38;51;28
Steve Selengut
yeah, absolutely. Well, I go, yeah, I have a two for two Facebook groups, one that is purely about this, about closed end funds, and the other one, which is called the, Retirement Income Independence Coach, where you can get on there and you can ask all your questions and somebody will answer them, even if it's not me, there's almost a thousand people in that group already, and they're very they're very free with their time.
00;38;51;28 - 00;39;04;29
Steve Selengut
And and they'll be helped be very helpful. I have a website called The Income Coach Dot net, where you can learn specifically more of the services I provide to people.
00;39;05;02 - 00;39;32;02
Steven Pesavento
Well that's amazing. Well, I really appreciate you putting all the time in to put a book together and share these things. as we wrap up for the people who are listening and they're thinking to themselves, this sounds really good, but it also sounds overwhelming to get started. Obviously you should go buy a copy of the book. What are some of those first steps that you recommend for them to wrap their head around it and make a move towards focusing on income?
00;39;32;04 - 00;39;55;26
Steve Selengut
Yeah, well, I think either reading the book first or going to closed end fund first and checking out a few possibilities, and looking at the histories of the distributions in, in all of them, those are the kind of steps I think you really should take. Look at, look at your own portfolio and see what real, base income you're producing.
00;39;55;26 - 00;40;14;16
Steve Selengut
I mean, most portfolios generate less than 3%, even if they're professionally managed. And if they are, talk to your guy and say, hey, you know, I, I want to make more. I want to have more income generating so I can go traveling so I can do this and that. And here's a book, buddy, that I'll show you how to do it, you know.
00;40;14;16 - 00;40;23;28
Steve Selengut
But, you know, I think that's some first steps. But check it out, do some research, go to go see if connect. I think it's a good place to start.
00;40;24;01 - 00;40;33;14
Steven Pesavento
Amazing. Well Steve, thanks so much for joining us and thank you all for listening. We'll see you on the next episode.
00;40;33;17 - 00;40;33;26