An article by Jason Zweig in The Wall Street Journal profiles Wilmot H. Kidd III, the former chief executive of Central Securities Corp., who retired on December 31st. Central Securities is a closed-end fund with $1.3 billion in assets, and has the distinction of outperforming Berkshire Hathaway for the past 20 years, as well as trouncing the S&P 500 going back half a century.
What has made Kidd’s fund so successful? Intelligent investing through patience, focus, and courage—as well as an approach that reverses the typical “strategy follows structure” model. Instead, Kidd puts strategy ahead of structure, to great results: if you’d sunk $10,000 into Central in 1974, you’d have almost $6.4 million by the end of 2021’s 3rd quarter.
As a closed-end fund, new investors purchase shares from outsiders rather than from the fund itself. That means that cash doesn’t pour in when stocks are overpriced, and investors don’t want their money back when there’s a bear market. This structure allows a closed-end fund to focus on its portfolio instead of managing its investors. And since Central is internally advised, its expenses run at a low 0.54%. Kidd has often held stocks for decades, with an annualized portfolio turnover rate at an averaged 11%. Sticking with a stock for the long run enables compounding to work its magic.
Additionally, Central holds only 33 positions, with 57% of its money in the 10 biggest. By focusing large bets on less companies, Kidd has been able to take advantage of long-term trends, such as investing in energy companies in the 1970s and pivoting to tech stocks in the following decade.
When Zweig asked him whether his success is due to luck or to skill, Kidd said, “It’s when you’ve been fortunate enough to make an investment in a great company, and suddenly you realize just how very lucky you were, and you buy more. That’s skill, I suppose. That—and holding on to what you have and not chickening out.”