End of 1st Quarter 2022 Report – Value Investment Fund

Value Investment Fund“Risk can be greatly reduced by concentrating on only a few holdings.” – Warren Buffett

During the first quarter of 2022, all major indices experienced dramatic retrenchment with the market value of their respective index. At some point during the quarter, most indices had double digit value reduction; the last half of March 2022 saw all of the various types of funds recover from the low points earlier in the quarter. However, this site’s Value Investment Fund experienced continued growth. This is the result of exercising highly selective buys that reduce risk dramatically. In turn, this risk reduction principle minimizes any type of potential loss associated with an economic wide downturn.

Again, the only reason the graph above illustrates a positive gain during the quarter is due to the primary principle of value investing – risk reduction.

During the quarter, the Value Investment Fund sold one of its holdings, Huntington Ingalls Industries. These are the financial results of this particular transaction.

Purchase Date                                                               11/30/2021
Buy Price                                                                      $176.00/Each
Transaction Fee                                                                $1.00/Each
Total Price per Share                                                    $177.00
# of Shares Purchased                                                    112.9943
Total Cost of Investment                                                $20,000.00

Date of Sale                                                                  03/07/2022
Holding Period                                                               98 Days 
Sale Price                                                                       $226.00/Each
Transaction Fee per Share                                                 $1.00
Net Earnings per Share                                                  $225.00
Total Net Receipts                                                     $25,423.72 ($225/Share X 112.9943 Shares)
Gain on the Sale                                                          $5,423.72 (Net Receipts Less Cost of Investment)
Dividends Earned During Holding Period                     $133.33
Total Earnings on Holding                                       $5,557.05
Absolute Return                                                             27.785%
Annualized Return                                                       103.48%

In addition, during the quarter, the Fund earned and received other dividends from other holdings totaling $271.34. Finally, back in January of 2022, the Fund sold PUTS* on Huntington Ingalls Industries with a strike price of $170 per share. Net earnings after transaction fees totaled $573.10. Total realized earnings during the quarter were $6,401.49.

* PUTs
PUTs are a form of insurance for a holder. Basically, the buyer of a PUT is paying a fee to protect their downside risk, i.e. the chance the stock price will slide below the strike price. Value Investors sell PUTs because they recognize that the strike price is at or less than their desired ‘Buy’ price. The end result is cash receipts for an opportunity to own stock/security at a price that you would pay anyway. This principle is one of the core four principles of value investing – Financial Analysis. PUTs are one of the sophistication tools taught in Phase III of the program.

During the quarter, the Fund paid $1,792.42 in taxes (Federal and State combined) for an effective tax rate of 28%.

Value Investment Fund – Fund Balance

This is the Fund’s results for the quarter:

Beginning Fund Balance 12/31/21 (11:59 PM)                                                                                        $169,557.56
Realized Earnings During the Quarter                                                                                                          $6,401.49
Less Taxes Paid                                                                                                                                           ($1,792.42)
Market Value of Existing Holdings on 12/31/21                                                                $50,990.06
Market Value of Existing Holdings on 03/31/22                                                                 $51,511.03
Increase/(Decrease) in Market Value of Existing Holdings During the Quarter                                             $520.97
Less Unrealized Market Value of Holdings Sold During the Quarter as of 12/31/21                                    ($987.56)
Value Investment Fund Balance on 03/31/22                                                                                           $173,700.04

The effective after tax increase during the quarter equals 2.44%. For comparative purposes, when pre-tax values are used, the Value Investment Fund’s improvement during the quarter is 3.50% (see the chart above).

For those of you new to reading about this Fund. It started 10 quarters ago with a beginning balance of $100,000 and has grown to an after tax balance of $173,700. Total gross change in the 10 quarters is $96,759. The difference between the current balance and the the accumulated earnings is of course taxes paid. This graph depicts the average annual earnings in comparison to other indices.

Value Investment Fund

What is noteworthy is that at one point during the quarter the remaining holdings had a market value of $61,952, an additional $10,441 more than the ending balance of those holdings on 03/31/22. As is expected over the next quarter, as the market recovers, the respective holdings will also recover to this higher balance which bodes well for the 2nd quarter of 2022. 

As noted with monthly reports and in other articles, the Fund’s facilitator is concerned about finding opportunities to buy low from the existing pools of potential investments. As of today, there are a total of 46 potential investments. The ideal goal is to reach more than 90 potential investments. Of the existing 46 potential investments, there are ZERO opportunities as most of these are at or near their all-time market highs. The Fund is sitting on $122,189 of cash. 

Value Investing works well because of the four key principles:

  1. Reduce risk by applying three practices;
  2. Determine intrinsic value of each potential investment;
  3. Conduct a financial analysis on each potential investment to determine appropriate buy and sell points;
  4. Be Patient!

Act on Knowledge.

© 2022, David J Hoare MSA. All rights reserved.

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