Recently, the Fund reevaluated Essex Property Trust Inc. and increased the company’s intrinsic value to $291 per share. In an article written in January of 2021, the Facilitator determined intrinsic value at $256 per share. In the course of one year, many market forces have elevated this intrinsic value higher. With real estate investment trusts (REITs), intrinsic value is strongly tied to fair market value of properties. At the end of 2020, the overall fair market value of the entire portfolio of apartments for Essex was estimated at net assets value (adjusted for closing costs, costs to sell, pay-off of associated debt and costs to eliminate book balance of financing outlays) of $19.14 Billion. This made each share worth approximately $283. During the last 16 months, the market value of real estate has jumped over 16%. Using a mere 12% adjustment to this portfolio, the modified net assets value now exceeds $21.8 Billion. This alone adds $36 per share in value. Utilizing net assets value by itself warrants an intrinsic value of $319 per share. And this assumes only a 12% increase in value over 16 months.
Real Estate Investment Trusts (REIT) are tax free business entities that invest in real estate developments and multi-family housing. There are strict compliance requirements to maintain this tax status. In general, the investors must by paid at least 90% of the earnings every year.
Throughout the last five months, over several different articles, the Fund stated that the goal for this particular investment within the REITs pool was to sell once the stock price hit $83 per share. On July 15, 2021 at 10:23 AM, the stock price hit $83 per share triggering the automatic sale of all 574.459 shares.
Total net receipts after deducting $1 per share for the transaction costs were $47,105.64 (574.459 * $82 net per share). Basis in this investment was $30,000 including the $1 transaction fee per share at purchase. Net earnings totaled $17,105.64.
On June 18, 2021 at 2:56 PM, Essex’s share price dropped to $304 per share triggering a stop-loss order purchased a month earlier. This automatic sale of all 92.2638 shares netted $302 per share. The Value Investment Fund pays $1 per share for any transaction and also pays $1 per share for any option or market mechanism such as the stop-loss directive. Total adjusted sales revenue equals $27,863.67 ($302/Share X 92.2638 Shares). Basis in Essex Property Trust is $20,000 including the original purchase price plus the purchase transaction fee of $1 per share.
The Fund profited $7,863.67. The total holding period was 201 days. Thus, the actual return on the investment was 39.32%. The effective annual return equates to 71.4%.
This past week, the Value Investment Fund grew 2.1% matching many of the major indices in the market.
The fund is well ahead of schedule and is on track to surpass 52% return for fiscal year 2021. Driving the unrealized gains are the REITs. This table illustrates how much has accrued since the purchases in late October, early November. Unlike many other investments, there are no performance indicators to assist investors during interim accounting periods. With REITs, an investor has to wait for the quarterly report to determine performance. Given the sound value of the underlying real estate, there is no concern regarding each position taken by the value investment fund.
The Club’s Value Investment Fund grew dramatically during March 2021. The Fund grew 10.1% driven by increases across the board for all investments. Total actual gain during March was $13,143 as illustrated in the report below.
As stated multiple times throughout the lessons and tutorials, high quality stocks have less risk and thus react remarkably well when the market goes down and recover quickly upon market rebound. Furthermore, high quality stocks provide many opportunities to earn good rewards if properly purchased at less than intrinsic value and sold upon market price recovery. Here is the Value Investment Fund’s status report for the end of March 2021.
Monitoring performance is the single best tool to ensure success with value investing. Comparing results against expectations provides the basis for good decisions. In business, this is known as the feedback loop. In effect, a variable input is changed, results are recorded, compiled and reported in a understandable format. Any unexpected results are analyzed and input changes are implemented. The pattern is repeated. The end goal is to generate continuous improvement. With business, improvement is stated in the form of profit; with investment funds, it is stated in the form of percentage of return on the overall invested capital. Thus, managing an investment fund is just like operating a business; the goal is to improve overall performance.
Throughout this series of lessons in Phase One of the program, it has been stated and reiterated several times. The goal of value investing is to generate returns that far exceed the returns of several indices. A value investor should expect at least a return on their investment in the mid-twenties as a percentage per year. The real goal is to generate 30% plus with returns. If the investor does their research properly and adheres to the four principles of value investing, achieving 30% plus per year on average is doable. But without monitoring performance of the fund, an investor cannot make the necessary timely adjustments to achieve the annual goal.
After five of the prior seven weeks with 3.5% or more of growth per week, this past week saw the Value Investment Fund with a disappointing reduction in value of 2.6%. One of the drawbacks of value investing is that, at times, the investor feels like their portfolio just isn’t exciting. But at the end of the day, value investing isn’t about excitement, it’s about generating good overall return over the long haul. There isn’t anything exciting about 30 to 40% returns per year. It pales when you hear stories of some investors that earned 200% or more on their investments. The reality is that the 30 to 40% returns per year come with minimal risk; whereas others have extreme risk and sometimes they are rewarded with outstanding returns. You hear about those outstanding returns, you never hear about the huge losses those risk takers absorb.
The fund is still well ahead of schedule and will surpass 48% return for fiscal year 2021. It is currently at 40.5% through the first 21 weeks. All of the respective investments on are on hold waiting for them to work their way to the target sales price. As they head towards those targets, there are going to be weeks like this past week whereby the entire market was down a half percent. In turn, this does impact value investment funds. Certain industries had greater setbacks and of course real estate investment trusts were one of those industries. During this past week, the REITs pool of investments experienced a 4% downturn. Still, REITs are leading the way for the fund with unrealized gains of $21,470 on a $70,000 investment basis over the 21 week period. An investor should be thrilled with results like that; but it just is disheartening when there is a minor setback. Adherence to the fourth principle of value investing, patience, will pay off.
The Club’s Value Investment Fund had the best week, March 13, 2021, this fiscal year-to-date. The Value Investment Fund grew a whopping 6.5%, $8,867 over the prior week’s ending balance. This is all due to the COVID relief package signed into law. Over the past week, the DOW grew 4.0% and the S&P 500 grew 2.6%. The Fund’s strong growth was spearheaded by the REITs pool of investments. As stated in multiple articles about the rebound for REITs written over the last five months, once the pandemic fear subsides, the market price recovery will accelerate for real estate intrinsic value based companies. Last week the REITs pool balance was $88,550; this week’s ending balance is $94,876, a 7.1% increase.
The Club’s Value Investment Fund leaped forward during February 2021. The Fund grew 11.31% driven by increases across the board for all investments. Total actual gain was $13,207.07 as illustrated in report below.
As stated multiple times throughout the lessons and tutorials, high quality stocks have less risk and thus react remarkably well when the market goes down and recover quickly upon market rebound. Furthermore, high quality stocks provide many opportunities to earn good rewards if properly purchased less than intrinsic value and sold upon market price recovery.