Value Investment Fund Status Week 9 – No Change

During the week ending December 25, 2020, the Value Investment Fund expanded 1.6%. Whereas the DOW reported a slight uptick of .04%. The lack of action by the President to sign the relief bill passed by Congress greatly affected the markets as a whole. Both the S&P 500 and the 1500 Composite Index only marginally decreased, about .2% each.

Value Investment Fund Status Week 8 – Patience

Patience is essential with value investing. It is difficult because it just can’t get here soon enough. However, the models will prevail and the returns on the investment will be lucrative. Be patient.

With the REIT Pool of investments, the model indicates that it will take about 10 months to reap an excellent reward; it has only been 2 months so far. Thus, patience is necessary even if the fund has some setbacks in the interim. Economic power will prevail and the REIT investments will do very well and well outperform the DOW, S&P and all other indices.

Value Investing – Financial Statements (Lesson 10)

To comprehend financial information, first the member must understand their general purpose and how they are prepared. The first section of this lesson introduces financial statements and their two primary purposes. In addition, pertinent issues are introduced that a company must endure to finally present a well prepared set of reports. Next, each of the five major types of financial statements are introduced. Most companies present a core set of five that include a 1) balance sheet, 2) income statement, 3) cash flows statement, 4) statement of retained earnings, and 5) a set of notes to clarify the four other statements. Some go further and present industry and highly customized financial reports. These are covered in Phase Two of this program along with the Pool’s information center that members have access to on this website. Finally, this lesson covers the importance of a few key bits of information and how these critical financial values impact the respective buy/sell models value investors develop.

Many stock market investors are not familiar with financial reports; they rely on accountants to provide the results in laymen’s terms in order to make decisions. This program is designed to build the confidence of non-accountant types to not only understand financial reports but to appreciate and ultimately, eagerly await their arrival each quarter. Again, Phase Two of this program goes in-depth about financial statements and how to interpret the information.

This lesson utilizes the financial reports as presented for the year 2019 from the Coca-Cola company. Coke is a DOW company and is considered one of the best stocks to own if you can purchase the stock at a good price. Coke is a dividend based purchase and often buyers purchase Coca-Cola stock to hold and receive dividends.

Value Investment Fund Status Week 7 – Tough Week

During the week ending December 12, 2020, the Value Investment Fund retracted 4.26%. Whereas the DOW only reported a decrease of .6%. The lack of action in Congress greatly affected the REIT Pool as its value decreased 6.25%. Inaction to support the economy overall affects confidence in the ability of tenants to pay their respective rents. Since the REIT Pool is strictly traditional apartment style real estate, this pool felt the brunt of this political mess.

Sold PUTS Norfolk Southern Railroad

With options, an owner of stock fears a sudden steep drop in price and thus they may purchase an option called a ‘PUT’ to force someone to buy the stock at a preset price. The key for the owner of a PUT is to set a floor price for their existing stock position. A seller of a PUT desires to own the stock at a certain price if it can get there.

Value Investing – Principle #4: Patience (Lesson 9)

This lesson isn’t about emphasizing patience, it is about understanding how patience actually creates financial wealth in the market. Unlike day trading which is not much more than gambling, value investing is about earning good returns on one’s investment. The decision models built will never create instantaneous wealth, they are simply designed to take advantage of a good portion of the market price extremes that stocks experience. The first part of this lesson introduces the reader to certain terms used with cycles. It explores cycles with two areas of nature, sound and ocean waves. The next part of this lesson explains how the market as a whole experiences ups and downs just like wave patterns. These cycles, just like sound and ocean waves have a reasonable correlation to predictability. The next section takes this cycling effect into the industry level of the market. What is commonly called the ‘Pool’ of investments with value investing. This cycling of value continues into the respective investments. These first four sections introduce the overall concept of cycling with stock prices.

With the concept of cycling, this lesson then introduces how a value investor captures maximum return on an investment by smartly setting the respective buy and sell points. There are some drawbacks to this concept, if the cycle is extended, the overall return on the investment decreases. This is covered in the fifth section below. What is really important to remember is that even though there may be an extended cycle period, it doesn’t mean the value investor lost money; it just simply means the overall return on the investment fund will be less than anticipated. Thus, in some years, your fund may experience only 10% overall growth whereas in some other years, it may experience 35 to 40% growth. The key is the long-term approach to value investing. What accumulates wealth is patience, a lifetime of patience.

Value Investing – Principle #3: Financial Analysis (Lesson 8)

Financial analysis is the basis to set up a predictable and reasonable market price for the respective stock. This becomes the sell price point or what is often referred to in this series of lessons as the recovery point. If all three forces (economic, industry and company level) are performing reasonably, then the stock price for the company will recover to this sell point within a short period of time. Therefore, it is important for value investors to understand the importance of having knowledge about financial analysis.

Financial analysis is an assessment of a company’s performance in the form of dollars. The goal is to establish a trend line of financial accomplishments. It is safe to assume that the historical results can predict future results with accuracy. Again, large corporations are money generating machines; it will take several adverse actions to slow down or diminish the ability to earn profits.

Financial analysis starts with gathering research data, specifically annual and the most recent quarterly financial reports. With this information, certain data is loaded into a spreadsheet so that ratios can be determined. With the spreadsheet data, trends are tracked and from there, summarized. This summary of pertinent outcomes assist the value investor with determining the most likely outcomes for the next several quarters. Take note, value investors are not as interested in extended time frames as this methodology is designed to determine an expected recovery value for the stock in the short-term. Value investors are not interested in holding to collect dividends, there are interested in the buy low, sell high tenet of business. Thus, long-term expectations are irrelevant.

Other key information is extracted from the quarterly and annual reports to confirm trends, validate business ratios and finally, determine the expected market recovery price.

Value Investment Fund Status Week 6 – 3.2X Dow Jones Industrial Average

Value Investment Fund Status Week 6 – 3.2X DOW Jones Industrial Average During the week ending December 5, 2020, the Value Investment Fund reports a 3.88% gain in one week. Whereas the DOW only reported a 1.2% gain. Thus, as happened multiple times this year to date for the fund and during Year One of …

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Value Investment Fund – Status on November 30, 2020

On October 31, 2020, the Investment Fund’s balance was $95,641.24. During the month of November, the DOW Jones Industrial Average increased 11.7% from 26,502 to 29,603. This fund, increased 19.79%. This is a reflection of why quality stocks are superior when a market wide recovery occurs. Review the first principle of value investing – risk reduction. Only buy quality stocks as it limits losses and allows for quicker recoveries. This provides two unique benefits. First, faster recoveries reduce exposure to losses and secondly, and very important, faster recoveries quicken the frequency of buy/sell transactions; thus, dramatically improving overall financial performance of a fund. This is explained in detail in Phase Two of the membership program.

Value Investing – Principle #2: Intrinsic Value (Lesson 7)

Intrinsic value is just one of the four principles of value investing. Intrinsic value sets the floor price of the investment; i.e. it is an automatic buy. Any price higher than this intrinsic value must be substantiated by other value investing criteria. In effect, other criteria may increase the buy point upwards of 20%.

Intrinsic value utilizes one or more of three different valuation methods. The first method and customarily applicable to high quality stocks is the discounted future free cash flow formula. The second method works best with penny and small-cap stocks; this is the traditional book method. Mid-caps’ intrinsic value is best served by the net assets value method adjusted to fair market value of the underlying assets. Those companies with strong fixed asset positions in the mid-cap market capitalization range are best served by this particular method. In effect, the accuracy increases significantly with the net assets value adjusted by fair market values for the underlying fixed assets.

Value investors customarily use the discounted cash flows method; but here too, there are adjustments tied to certain criteria to provide a more accurate and reasonable intrinsic value for the stock.