Value Investment Fund – End of June 2022 Report (Halfway Through 2022)
In general, the market as a whole has taken a beating over the last six months. The closest similar fund or performing index is the NASDAQ 100. Approximately 22 of the 48 potential investments within the Value Investment Fund are currently included in the NASDAQ 100. To date in 2022, the NASDAQ 100 is down 29.5% whereas this site’s Value Investment Fund has decreased in value a mere 5%. Why?
Simply put, the Value Investment Fund adheres to four core principles that dramatically reduce risk and volatility. In addition, the selective guidelines also allow for quick recoveries once the market begins its uptick in performance. Those four core principles are:
- Risk Reduction through purchasing only high quality stocks which in general are more resilient during market downturns and generally recover quickly during upswings;
- Intrinsic Value – determine the core value of all securities which then allows the value investor to set an appropriate ‘Buy’ price;
- Financial Analysis – looking at the historical pattern and understanding a company’s business model along with their trend lines assists value investors with market recover price points, ‘Sell’ points;
- Patience – the most difficult aspect of investing is patience; patience is require to ‘Buy’ low and ‘Sell’ high reaping the rewards of smart investing.
In effect, the Value Investment Fund only buys when the market price for the particular securities dips dramatically whereas the index reflects the market price valuation for all 100 investments. Selective buying provides this distinct advantage and reduces extreme volatility.
Since inception, this Fund has demonstrated outstanding performance in comparison to all the major indices. Look at this graphical depiction of average annual yield.
June recorded some interesting activity.
During the month of June, the Fund purchased additional shares of Essex Property Trust, Inc. The price dipped below $260 per share and the Fund purchased 77.7 shares at $256.40 plus an additional $1 per share to cover transaction costs. In addition, the Fund sold a PUT option for 100 shares at $9.90 netting $890 after fees of $1 per share. The PUT option contract is at a strike price of $240 per share and expires on October 21, 2022. As of June 30, 2022 there are two PUT option contracts with strike prices of $260 and $240; both of them expiring October 21, 2022. The buyer of the $260 PUT option has not elected to enforce the contract due to the long period of time to go to the expiration date; there remains over three months.
Also, during June, Essex Property Trust, Inc. paid a $2.25 per share dividend earning $336.12 for the Fund.
Now for the bad news, the Fund’s respective holdings, all of them, experienced dramatic decreases in value due to adverse market conditions. Overall, the market experienced an 8.4% decrease in value. In turn, the Fund experienced a 9% decrease in value net of tax recovery from May’s ending balance. The Fund stills sits on $23,904 of cash which allows for additional opportunities if something can present itself. Overall, even with the dramatic declines since start of the year, there still exists no optimal opportunities. Most of the selections within the Fund’s pools are still well above intrinsic value. This again reasserts the need for the Fund to expand the selection pool.
Value Investment Fund – Status on June 30, 2022
. June 30, 2022 June 30 , 2022 May 31, 2022
. # of Shares Cost Basis Market Price* Fair Market Value* Fair Market Value*
. – Essex Property Trust, Inc. (Tranche #1) 71.6846 $20,000 $260.51 $18,674.55 $20,275.99
. – Essex Property Trust, Inc. (Tranche #2) 77.7000 20,000 $260.51 20,241.63 No Position
. Sub-Totals 149.3846 40,000 38,916.18 20,275.99
– No Stock Holdings (All five railroads are well above intrinsic value)
. – No Stock Holdings (All five insurance companies are approximately 25% higher than their respective intrinsic values)
. – No Stock Holdings (All six military contractors are performing well)
. – No Stock Holdings (All six hotel chains are well above intrinsic value)
. – The Walt Disney Company (Tranche #1) 180.1801 20,000 $93.40 $16,828.82 $19,718.91
. – The Walt Disney Company (Tranche #2) 200.0000 21,200 93.40 18,680.00 21,888.00
. – The Walt Disney Company (Tranche #3) 198.0198 20,000 93.40 18,495.05 21,671.29
. Sub-Totals 578.1999 61,200 54,003.87 $63,278.20
. – Wells Fargo (Tranche #1) 292.0560 10,000 $38.17 $11,147.78 $13,075.35
. – Wells Fargo (Tranche #2) 558.9715 20,000 38.17 21,335.94 25,025.15
. – Wells Fargo (Tranche #3) 234.3292 10,000 38.17 8,944.35 10,490.92
. Sub-Totals 1,085.3597 40,000 41,428.07 $48,591.42
Dividend Receivables (Essex Property Trust) 336.12 271.34
Cash on Hand (Basis, Gains, Dividends, PUTS) 23,904.43 44,007.58
Totals (Starting Cost Basis = $100,000) $141,200 $158,588.66 $176,424.52
Accrual adjustment for recapture of taxes, IF the Fund were to sell its position and realize loses 1,918.53 -0-
Totals Net of Tax Recapture $160,507.19 $176,424.52
This portfolio’s value is AFTER TAXES of 28% on all realized gains. Total taxes paid to date equals 25,450.11 24,185.62
Comparative Gross Return Since Inception $185,957.30 $200,610.14
Unrealized Earnings (Value of Respective Market Prices Less Cost Basis/Fees at Point of Sale) ($6,851.88) $10,945.61
*Net of transaction fees of $1.00 per share; thus the amount in the schedule equals the actual market price per share at closing less $1.00 per share.
On 01/14/2022, the Value Investment Fund’s end of week balance hit the highest point year-to-date 2022 at $182,329 reflecting the dramatic improvement tied to Wells Fargo; read Wells Fargo One Year Report for additional clarification. Wells Fargo stock price peaked at $57.08 net of fees to dispose. The facilitator admits to erring by not adhering to the original preset sale point of $58 per share in the market. In effect, I changed the sell point because I got greedy (stupid move on my part) and increased the sell point to $63 per share. I reread Lesson 18 about churning the portfolio. Again, once you have set your intrinsic, buy and sell points, a prudent value investor sticks to them. Lesson learned; I will not do that again. Had I adhered to the principle set forth, the Fund would be $11,000 greater in value net of taxes. Sometimes in life, you just have to admit you screwed up. I screwed up.
The Value Investment Fund’s current exposure related to PUT options is as follows:
- Union Pacific Railroad – sold in Feb 2020 with a strike price of $155/share and an expiration date of January 21, 2023 $20,000
- JP Morgan Chase – sold in May 2022 with a strike price of $80/share and an expiration date of June 16, 2023 $20,000
- Essex Property Trust, Inc. – sold in May 2022 with a strike price of $260/share and an expiration date of October 21, 2022 $20,800
- Essex Property Trust, Inc. – sold in June with a strike price of $240/share and an expiration date of October 21, 2022 $24,000
Market prices on June 30, 2022 are:
- Union Pacific Railroad (Expiration on 01/21/2023) $213.28 (Strike Price of $155.00) Current Deviation = 37.60%
- JP Morgan Chase (Expiration on 06/16/2023) $112.61 (Strike Price of $80.00) Current Deviation = 40.76%
- Essex Property Trust, Inc. (Expiration on 10/21/2022) $260.51 (Strike Price of $260.00/$240.00) Current Deviation = 0%/8.5% Respectfully
*Deviations > 25% are considered favorable and require no reserves.
In effect, the only possible short-term contractual compliance requirement is Essex Property Trust, Inc. The Fund does not anticipate enforcement of either Essex PUT option prior to October 21, 2022 for the following reasons:
- It took the market’s fear of tenant non-payments during COVID to drive the price below $200 per share back in early March 2020; that scare is now far behind us.
- This particular company generated CORE Funds From Operations of more than $3 per share during the first quarter of 2022.
- This company’s intrinsic value is tied to the market value of the underlying assets (apartment complexes); during the last two years, market prices for real estate have increased more than 12%. Current intrinsic value for this REIT is more than $290 per share.
Finally, if the PUT options were enforced, the Fund welcomes the opportunity to buy a high quality security at such a low price. For now, the Fund has cash in reserve to comply with the terms of the PUT options.
Value Investment Fund – Activity During June 2022
There were three transactions during the month of June, 2022. Two of them generated realized income totaling $1,126. The third was a ‘Buy’ of stock with Essex Property Trust. The following is a detail transaction register of activity during June 2022:
. June 14, 2022 – Sold a PUT option for 100 shares of Essex Property Trust $890.00 (Net of transaction fees of $1/share)
. June 30, 2022 – Recorded rights to dividends of $2.25/share Essex Property Trust 336.12
. Sub-Total Realized Income $1,126.12
. Realized Income Earned Year to Date Carry Forward from May 31, 2022 9,691.40
. Total Realized Earnings Year to Date 2022 $10,917.52 (6.43% Realized Return to Date)
Taxes Paid to Date 2022 – $3,056.91 (28% of the $10,917.52 Realized to Date)
Portfolio Position Activity
. June 14, 2022 – Purchased 77.7 shares of Essex Property Trust, Inc. (Tranche #2) at $257.40 per share including transaction fees of $1/share
This chart illustrates this Fund’s effective return net of taxes lifetime to date.
Overall, the Value Investment Fund is performing remarkably well in relation to the balance of the market during the first six months of 2022. This is even with the error associated with the failure to sell Wells Fargo back in second week of January. Overall, the market is down at least 15% as indicated by the DOW; the DOW reflects the top 30 companies. The reality is that the market overall is down about 21% (S&P 500, S&P Composite 1500) since January 1, 2022. The S&P 500 and Composite 1500 are a more conservative comparative indices to this Fund’s selection pool of investments. As stated above, if using the NASDAQ 100, the Fund is simply crushing the market with Fund down 5% and the NASDAQ 100 down 29%.
This Fund’s facilitator recognizes that in order to achieve at least a 20% gross return by year end 2022, two actions are necessary. First, the site’s pool of potential investments must be expanded to no less than 60 members spread among at least eight pools (recently added the Entertainment Pool). Secondly, the market must now begin to recover which will allow the existing investments to gain value. Patience is required; it is one of the four core principles of value investing. The Value Investment Fund is currently sitting on a fair cash position at $23,900 (15% of the portfolio). This will allow the Fund to act when the conditions are beneficial. Act on Knowledge.
© 2022, David J Hoare MSA. All rights reserved.