the

closed
end fund
strategy
guide
from
James Altucher
The Ultimate Cheat Sheet for Success in the New America April 2015 - Volume 01 - Issue 02

did he steal
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filled with money, investing
MY CLOSED-END FUND STRATEGY and entrepreneurial
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Ok, it might not have been $60 million dollars but I feel this hedge fund man-
ager took $30 million from me. DID HE OR DIDNT HE STEAL
$30 MILLION FROM ME
That said, Im happy to share the same strategy with you that I did with him.
Plus, MY PROPRIETARY TECH-
Its an incredibly boring strategy. But it works if you put in the time. NIQUE FOR MAKING 10-15% a
year no matter what the market
Let me tell you the story at a high level first. does

Plus, the Union City, NY Cuba

This one hedge fund manager called me in 2005 after I wrote an article in The
connection and why it can make
Financial Times. Hes a well-known billionaire hedge fund manager. you money
He had also recently broken the law and paid a big fine. He told me, My sec- Plus, can a newsletter change
retary said Eliot Spitzer was on hold for me. I instantly called my lawyer on your life?
the other line and told him to wire $100 million to the SEC. Then I was ok.

I went to visit him in his offices. We walked for awhile. He said to me, when-
ever you have an idea, come to us and well see if we can work together.

A little over three years later I had an idea I thought was appropriate for him. questions?:
I said I needed $300 million to do it right. He said, ok, tell me the idea.
HAVE A QUESTION FOR JAMES?
Im a trusting guy. Theres no reason not to be. Its not like I was going to sue
Every day, James answers listener
him if I thought he stole my idea because ultimately theres no way to prove
questions in his wildly popular
things like that. I see that over and over in the judicial system. Ask Altucher podcast, which he
records with his wife Claudia.
It was late 2008 and early 2009 and we had a series of meetings that included
all of his highest executives. You can access Ask Altucher
directly here or download
episodes from iTunes here.
My idea was simple: several high profile analysts on
Wall Street had basically said that not only were all US
banks going to fail but that a huge percentage of states
and municipalities were going to go bankrupt, starting
with California and Texas.
I thought they were wrong for a simple reason: its il-
legal. Federal law prevents a state from going bankrupt.
Take California as an example. Not only is a state not
allowed to declare bankruptcy but according to the
California state constitution they cannot stop paying
their bills unless they FIRST stop paying government
employees: including teachers, policemen, and firemen.
Even municipalities have a hard time going bankrupt.
The most well-known local bankruptcy is Orange
County in 1994. They lost everything.
Guess what, they paid back, in full, all of their debts.
Unlike a company, which can just be dissolved, a state
or city still exists. They have to eventually get money
again. So they try very hard to pay their bills and they
have always succeeded.
Im thinking of one in particular. Someone told me she
was charging a million dollars a year to various banks
and hedge funds to give them advice like that.
She was getting rich by scaring everyone! Thats a very
common technique.
So I decided to look deeper. I looked at some of the
Texas funds that owned Texas municipal bonds. Sure,
the price of oil was down. But were people going to stop
driving forever?
In any case, I looked up the actual bonds they owned.
All of them had never missed a payment, even in the
financial crisis. All of them were from cities that had
zero reliance on oil and werent located near any big oil
cities.
So I visited my friend the hedge fund manager. I said to
him, Ive found 40 of these I could put money to work
but its hard to invest in them. They are sort of boring
so I would have to scale into them over time.
He said, Ok, sounds great. How much do you need?

Texas was another example: because of the decline in

oil prices in 2008, everyone thought Texas was going
bankrupt. So a lot of Texas municipal bonds were trad-
ing as if they were already bankrupt.

So a lot of publicly traded stocks (called Closed end

funds) that owned Texas municipal bonds were trad-
ing really low.

By really low I mean something specific.

Lets say you had a wallet with $100 in it. If someone

came over to you and said, Ill pay you $75 if you give
me your wallet and everyone in it you would run away
and probably call the police.

But thats what was happening with these closed end

funds that had lots of California and Texas municipal
bonds.

If they had $500 million worth of bonds, sometimes

they were trading for a $300 million valuation and giv-
ing a 12% dividend.

Everyone thought they were going bankrupt! Thats what click here to learn more
happens when you listen to the top Wall Street analysts.

April 2015 Volume 01, Issue 02 2 visit: www.jamesaltucher.com

I said, 300 million dollars. Which sounds like a lot
but if I had only said, 10 million he wouldve shaken
his head and said, That doesnt even move the needle
for me.
He said, Ok. Were all going to talk about it and get
back to you. Do you mind coming in here every day so
we can keep eye on you if we say yes to this?
I said, Of course! I was going through a divorce at the
time. So, heck yeah Ill come in and sit at a desk and
look at nothing all day.
I called him a week later. Then a week after that. Then
a month after that. And I sent email. All the funds I had
shown him started moving up.
Finally, after about three months, all the closed-end
funds (which, again, trade as if they are publicly traded
stocks on exchanges like the New York Stock Exchange)
were all up about 50% and I felt like the trade was more
or less over.
He finally picked up the phone. Sorry, I couldnt call
you, he said, it turns out we already had $300 million
invested in these. We were already doing the strategy.
But please tell me the next idea when you have one.
No thanks.
The way Wall Street typically works is that I wouldve
asked for a percentage of the profits. I wouldve asked
for 20% of the profits. He wouldve countered with 5%
and we wouldve settled on 10%.
Over the course of that next year the stocks I initially
recommended were up over 100%.
So, I dont know. Maybe I couldve made $30 million
on that trade.
One thing I know - you win some and you lose some.
Thats a clich because its true. I have no hard feelings.
But I wont give him my next idea.
Instead Im going to give it to you.
All of these closed-end funds trade on the market so
you can just open up your account and trade them the
same way you would trade Apple (AAPL), Disney (DIS),
etc. (full disclosure: I own both of those).
April 2015 Volume 01, Issue 02
Heres my typical approach to the closed end fund
strategy and its a pretty safe strategy.
1 Find the areas of the country that
people are most scared of.
Right now I will tell you where that is: my home state.
The state I grew up in. The Garden State of New Jersey.
High deficits, corruption, crime, etc. I dont even know
why its such a scary state but people who buy munici-
pal bonds are scared of it.
Find some stocks that are closed-end
2 funds that own municipal bonds in the
scary states.
One stock is NXJ. The name is Nuveen New Jersey
Dividend Advantage. The Advantage means in this
case that you dont have to pay federal taxes on your
dividends because municipal bonds are tax free. If you
live in NJ you dont even have to pay state taxes on it.
The dividend is 6% but without taxes thats the equiva-
lent of 9.24% right now.
The average S&P stock gives about a 1% dividend. And
your savings account gives about 0.1%.
But heres whats interesting.
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3 Make sure the stock is trading at
a very large spread between the
amount of bonds they own and what the
market is currently valuing these bonds at
(like in the wallet example above).
The spread between the dollar amount of the bonds
they own (whats in the wallet) and what you pay for
those bonds (what you pay for the wallet) is the great-
est in its history.
Heres a picture. The orange line is the dollar amount
of the bonds and the other line is the stock price.
See its the highest spread ever.
That spread will snap back. Unless the municipalities
go bankrupt.Which they wont.
4 Look at the bonds they own. Are they
up to date on their debts?
This is the next part of the trick. Ugh, I promise this
wont be an entire newsletter about municipal bonds.
So let me take this to Cuba for a second.
April 2015 Volume 01, Issue 02
The US and Cuba are, for the first time since 1959, go-
ing to start being friendly to each other. Which means
money and people and commerce will start flowing
back and forth.
The #1 city in the country for Cubans is Miami.
#2 is....Union City, NJ.
The biggest part of the NJX portfolio is a bond that
helps Union City maintain their cities. Union City has
never missed a payment. Its two miles from Manhat-
tan with real estate that is 35% cheaper and its about
to benefit from the new Cuban - US connection.
Ive gone through all the top bonds owned by this fund.
None of them have missed a payment.
Heres what I think will happen:
A. You will get your 6% (really 9.25%
taxable) dividend
B. And while you collect dividends the
stock will snap back into place with
what is actually in the wallet. So
the stock will go up.
I am not telling you this because I want you to buy NJX.
Im telling you this because this is an entire strategy
that I think can work for you if you put 1-2 hours a
week of time into it. And I think its good for a solid 10-
15% per year with minimal downside. We arent trad-
ing penny stocks here. Its municipal bonds. The most
boring thing imaginable.
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re-stated - heres the municipal bond
strategy in a nutshell:
GOOOGLE which states are financially the worst so
you can get a good list of states to start researching in
GO to etfconnect.com or cefa.com to find the closed-
end funds that own a lot of municipal bonds in those
states.look for the funds that are paying the highest
dividends and have the highest discounts to net asset
value (NAV)
RESEARCH all the bonds in the fund. Research the
cities that owe money. Are they reliable cities?
LOOK for all the politics and economics around those
cities and states. If a city is two miles from New York
City, for instance, theres a lot of reasons why its not
going to go bankrupt.
April 2015 Volume 01, Issue 02
EVEN research Cuba if you have to. What does nor-
malizing relations even mean?
And then buy 10-20 of the funds. You can try with just
one if you want but I like to spread the risk around
geographically.
Collect 9% a year in dividend and watch the stocks go
up another 10-20%.
The best years for this strategy are when the market
is crashing. You know that people will charge a lot of
money to scare the heck out of Wall Street so thats
when the opportunities will pop up more than usual.
Although, to be honest, New Jersey is a pretty scary
state in general. I grew up there. I love it because of
that. But I can see why the rest of the country stays
nervous.
whats next?
find out for yourself!
The Choose Yourself Guide
to Wealth has several other
principles for you to start
building wealth.
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5 visit: www.jamesaltucher.com