Crushing the S&P 500 for 50 Years

An obscure 100-year-old (nearly) investment has beaten the S&P 500 for the past 50 years and Berkshire Hathaway for the past 25.

No hype, no nonsense, no BS.

Let’s call it the all-star, left-tackle version of the investment world.

An investment that draws zero attention, but through persistence, patience, and discipline simply grinds ahead to create wealth for its investors.

I give you the enigmatic Central Securities Corp. (NYSE: CET), which has been grinding ahead to create wealth for its shareholders for the past ninety-four years.

Central Securities Corp. opened its doors on Oct. 1, 1929. Stock-market historians might raise an eyebrow at the date of the debut. October and 1929 conjure an important event. They are the month and year when the Wall Street Crash of 1929 occurred, which then segued into the Great Depression.

Talk about timing. The greatest stock market crash in U.S. history occurs only weeks after you’ve hung your business shingle. I supposed what doesn’t kill you makes you stronger. Perhaps being almost killed has steeled Central Securities Corp.’s resolve since.

Regardless of the philosophical reason, Central Securities Corp. is here ninety-four years later. A company that has refreshingly retained its stolid demeanor and adult name, ignoring the proclivity of the day, which is for companies to pinch their moniker from the burblings of a three-year-old.

So, what is it?

I’ll start with what it isn’t. Central Securities Corp. is no operating company. As for what it is, it is a closed-end fund, and one I suspect few investors are aware exists (including yours truly until recently). Its net asset value (NAV) hovers around a billion dollars. Only 17,000 shares on average change hands daily. No one goes on CNBC to pimp the company to investors, including the company itself. Central Securities Corp. really is as anonymous as a left tackle.

The attraction?

I think I mentioned something about wealth creation, but wealth creation over time, mind you. That could be another reason for Central Securities Corp.'s anonymity. No one buys a ticket to watch grass grow. Central Securities Corp. is no meme stock, lottery ticket, or quadruple-your-money AI promise. It’s no Patrick Mahomes, if I may return to my football analogy. It is the Trent Williams equivalent. Who? Exactly.

Wealth creation grinds ahead and grinds ahead at a rate an all-star left tackle could appreciate. By cobbling year after year of returns that are, on average, a percentage point or two ahead of the S&P 500, Central Securities Corp. has produced a long history of superior annualized performance. Its 50-year average annual return is over two percentage points higher than the S&P 500. That’s a big difference and a big deal in building and compounding wealth when we’re playing the very long game.

Central Securities Corp. Historical Returns

Source: company disclosure

Let’s infuse the percentages with dollars. A $10,000 investment in Central Securities Corp. or an S&P 500 fund for the past thirty years? Need I say more? [I used thirty years so that I could compare it to a readily investable S&P security that I can compute with dividend reinvestment, the SPDR S&P 500 ETF Trust (NYSEArca: SPY), dates to January 1993.]

[Sidebar: The S&P 500 is one thing, Berkshire Hathaway (NYSE: BRK.a) is another. To outperform Berkshire Hathaway is to outperform the gold standard, not over a year mind you, but over many. Central Securities Corp. has held its own and then some against Berkshire for the past twenty-five years. Keep in mind that dividends are included in the wealth-generation calculation.

The further we regress into time, the more the pendulum swings the other way. A fifty-year investment in Central Securities Corp. or Berkshire Hathaway? The nod goes to Berkshire Hathaway. It’s not even close, but, then again, who would be close?

Disclosure: The data and metrics are courtesy of Morningstar. I have not checked the accuracy. I have run the same scenarios through other graphing and chart websites. The outcomes have been the same, but the numbers haven’t.]

Central Securities Corp. pays a distribution twice annually. The first payment is static and small – $0.20 per share. The second is variable and considerably larger. It has ranged between $0.80 and $3.55 over the past ten years. It’s composed mostly of accumulated long-term gains.

Distribution reinvestment into Central Securities Corp. shares is a vital variable in the wealth-compounding equation. The above graphs include distribution reinvestment.

As for the investments that populate the portfolio that cash flow the distribution, it’s as old-school as it gets.

Source: company disclosure

Central Securities Corp. runs a concentrated portfolio. It owns 28 publicly traded stocks. Larger blue-chip companies dominate the list. The top-ten holdings account for 60.5% of NAV.

And then time goes to work with its wealth-compounding magic. Central Securities Corp. invests with conviction, and because it invests with conviction, it holds, and holds, and holds. And then holds some more. This is a very low turnover fund. I find myself inspired when I run across someone who appreciates the virtue of patience.

You’ll notice in the table above that the largest holding isn’t a publicly traded company. Central Securities Corps. owns a 23% stake (21.8% of NAV) in privately held The Plymouth Rock Company, a regional insurance company headquartered in Boston. Central Securities Corp. was an initial Plymouth Rock investor. It has held its investment for 41 years.

(Non-Sequitur: Though not a publicly traded company, The Plymouth Rock Company publishes its annual report. Here’s a link to the latest annual report. The annual report is interesting for its very Warren Buffett-esque tone and texture. That’s not the worst attribute for an insurance company.)

Central Securities Corp. is a closed-end fund, and the shares of many closed-end funds will frequently and continuously trade below NAV. Central Securities Corp. is no exception. Its shares trade at a 17.6% discount to NAV. The discount has ranged between 11% and 20% over the past year. A discount is the norm. The Central Securities Corp. shares haven’t traded at a premium since the late-1990s.

Why they trade at a persistent discount is a mystery to me. Size is probably a reason. The NAV is only $1.2 billion, which is too small to draw institutional investor interest. The shares are low volume and relatively illiquid. That’s another plausible reason. The discount is a nuisance, though it has hardly impeded Central Securities Corp.’s ability to compound wealth.

To maximize the wealth-compounding potential, I recommend holding Central Securities Corp. shares in a retirement account – a traditional or Roth IRA or a self-directed 401(K). I also recommend (strongly) distribution reinvestment.

And then take the long view, the very long view.

The beauty of a great investment is that it compounds wealth over time, and you’re mostly unaware of the compounding, as it should be. The emotions are rarely roiled. And when the emotions are rarely roiled, the impetus to act stupidly, another impediment to wealth creation, rarely occurs.

(Offer: Interested in more investment ideas, especially those centered on income, value, and options? Then visit me at wyattresearch.com. You’ll find a plethora of my investment ideas from the past, you’ll be privy to my investment ideas coalescing for the future.)

Now for the fine print, which isn’t so fine: I own shares of Central Securities Corp. I know no one who works for the company, and no one in the company knows me. I’m a Charter Financial Analyst, but not a registered investment advisor. More importantly, I’m not your investment advisor. What works for me, might not work for you. Everything I have presented is for information only. DYOR – Do Your Own Research. You are responsible for you.

DISCLAIMER: THE AUTHOR DOES NOT GUARANTEE THE ACCURACY OR COMPLETENESS OF THE INFORMATION PROVIDED ON THIS PAGE. THE INFORMATION CONTAINED ON THIS PAGE IS NOT AND SHOULD NOT BE CONSTRUED AS INVESTMENT ADVICE, AND DOES NOT PURPORT TO BE AND DOES NOT EXPRESS ANY OPINION AS TO THE PRICE AT WHICH THE SECURITIES OF ANY COMPANY MAY TRADE AT ANY TIME. THE INFORMATION AND OPINIONS PROVIDED HEREIN SHOULD NOT BE TAKEN AS SPECIFIC ADVICE ON THE MERITS OF ANY INVESTMENT DECISION. INVESTORS SHOULD MAKE THEIR OWN INVESTIGATION AND DECISIONS REGARDING THE PROSPECTS OF ANY COMPANY DISCUSSED HEREIN BASED ON SUCH INVESTORS’ OWN REVIEW OF PUBLICLY AVAILABLE INFORMATION AND SHOULD NOT RELY ON THE INFORMATION CONTAINED HEREIN.