Welcome to Money for the Rest of Us. This is a personal finance show on Money, how it works, how to invest it, and how to live without worrying about it.

I'm your host, David Stein, today is episode 386. It's titled, When Should You Pay A Premium?

Last week, the investors podcast released a conversation I had with Tray Lockerby.

We discussed a wide range of topics, including about a five minute conversation on business development companies.

If you recall, we covered business development companies or BDCs a few weeks ago in Money for the Rest of Us Episode 381.

BDCs are a niche asset class, with about $53 billion in assets outstanding.

They're relatively new. They're a type of closed and investment company that directly funds businesses that have revenue between $10 million in a billion that's called the middle market.

BDCs have been around since the early 2000s, and they're somewhat a hybrid between a traditional bank and a private equity fund in that they extend credit.

But they also can provide some equity, some guidance, and counseling about managing operations.

After the episode and the investor's podcast was released, I was perusing the comments on the video version that was hosted on YouTube.

One of the comments stung a little. The commenter said, I wish you would stick to higher quality interviewees.

This guy, me, doesn't understand why business development companies will sell above NAV or the net asset value.

In other words, he's saying, I don't know why investors would pay a premium to purchase a business development company.

He went on, guessing you can't believe Google sells above book value either.

Now, we'll see in this episode, there's a big difference between book value and net asset value.

And when he says, was it entirely accurate? We ran out of time. We weren't able to get into as much detail on BDCs as potentially that particular listener who must be an expert, one of us too.

Fortunately, I have my own podcast so we can go into more detail.

In that episode, the specific BDC I was referring to was Hercules Capital. I didn't mention it by name. The ticker is HTGC.

It was about a week ago selling for a 60% premium to its net asset value.

And again, I'll define net asset value here in a few minutes. I said in the episode I was viscerally opposed to holding something at that much of a premium.

If there was a chance, it could fall. But his comment brings up a good question. When should we pay a premium for something?

Now, there are different uses for the word premiums. But in this case, the premium definition that we're focused on is the idea of paying more than the usual price or the suggested retail price for something.

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