Value Investment Fund – End of May 2022 Report

Value Investment Fund

May was a good month for the Value Investment Fund. During this period, the Fund increased $7,966 in value over April 30th’s balance, about 4.73%. Whereas the market as a whole lost an additional 1%. This results from adherence to the four core principles of value investing.

  1. Risk Reduction through purchasing only high quality stocks which in general are more resilient during market downturns and generally recover quickly during upswings;
  2. Intrinsic Value – determine the core value of all securities which then allows the value investor to set the ‘Buy’ price;
  3. 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;
  4. Patience – the most difficult aspect of investing as patience is require to ‘Buy’ low and ‘Sell’ high and reap the rewards of smart investing.

During May, the Fund expanded the portfolio to include two new positions from among the existing 48 potential investments. The first included three separate tranche purchases of The Walt Disney Company and the second was an opportunity presented when Essex Property Trust, Inc. dropped below its intrinsic value. In addition, the Fund sold two separate option contracts in both positions. The Walt Disney Company position was exercised within a few days of that sale and the current option contract for Essex Property Trust, Inc. remains active. The sale of PUT options (three separate companies) generated $3,019 of realized income after associated transaction fees. Please note, PUT options are a contract sold that allows the buyer to force the Fund to purchase that security at pre-set price. The Fund sells these PUT options as it desires to own these securities at a certain depressed market price. It is considered an excellent tool to own stock at a very low price and if the PUT is not exercised, well, at least some income was earned from the opportunity. Finally, Wells Fargo did issue a dividend worth $271 to the Fund. This dividend sits as a receivable on the books of record as Wells Fargo will pay the dividend during the first week of June.

For those readers just learning about this site’s Value Investment Fund or wanting to learn more about Value Investing, it is suggested that you first sign up to receive e-mail notifications (the entry form at the end of this article). If you want to learn more, go to the Membership page or the site’s Home page or even the Value Investing page.

Since inception, this Fund has demonstrated outstanding performance in comparison to all the major indices. Look at this graphical depiction of average annual yield.

Value Investment Fund

Value Investment Fund – End of May 2022 Report

                                                                                                                         May 31, 2022              April 30 , 2022              May 31, 2022
.                                                                        # of Shares     Cost Basis       Market Price*         Fair Market Value*     Fair Market Value*

.   – Essex Property Trust, Inc.                             71.6846           $20,000            $282.85                        No Position                   $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)
Military Contractors 
.    – 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            $109.44                       No Position                   $19,718.91
.    – The Walt Disney Company (Tranche #2)         200.0000             21,200              109.44                       No Position                     21,888.00
.    – The Walt Disney Company (Tranche #3)         198.0198             20,000              109.44                       No Position                     21,671.29
.       Sub-Totals                                                  578.1999              61,200                                                                                     $63,278.20
.    – Wells Fargo (Tranche #1)                                292.0560             10,000               $44.77                      $12,450.35                     $13,075.35
.    – Wells Fargo  (Tranche #2)                                558.9715             20,000                 44.77                        23,828.96                       25,025.15
.    – Wells Fargo (Tranche #3)                                              234.3292             10,000                 44.77                          9,989.45                       10,490.92
.       Sub-Totals                                               1,085.3597             40,000                                                  46,268.76                      $48,591.42
Dividend Receivables (Wells Fargo)                                                                                                              -0-                                  271.34
Cash on Hand (Basis, Gains, Dividends, PUTS)                                                                                     122,189.01                      44,007.58
Totals (Starting Cost Basis = $100,000)                                  $121,200                                              $168,457.77                   $176,424.52
This portfolio’s value is AFTER TAXES of 28% on all realized gains. Total taxes paid to date equals                                         24,185.62
Comparative Gross Return Since Inception                                                                                                                                   $200,610.14
Unrealized Earnings (Value of Respective Market Prices Less Cost Basis and Fees at Point of Sale)                                   $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
  • Huntington Ingalls Industries – sold in January 2022 with a strike price of $170/share and an expiration date of June 17, 2022   $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          $20,880

Market prices on May 31, 2022 are:

  • Union Pacific Railroad (Expiration on 01/21/2023)                          $219.80  (Strike Price of $155.00) Current Deviation = 41.80% 
  • Huntington Ingalls Industries (Expiration on 06/17/2022              $210.46  (Strike Price of $170.00) Current Deviation = 23.80%
  • JP Morgan Chase (Expiration on 06/16/2023)                                    $132.22  (Strike Price of $80.00)  Current Deviation =  65.27%
  • Essex Property Trust, Inc. (Expiration on 10/21/2022)                      $282.85  (Strike Price of $260.00) Current Deviation =  8.78%

Value Investment Fund – Activity During May 2022

There were eight transactions during the month of May, 2022. Four of them generated realized income totaling $3,290. The other four were ‘Buys’ of stock from two different companies. The following is a detail transaction register of activity during May 2022:

Realized Income
.    May 6, 2022 – Wells Fargo’s earned dividends declared in April                                 $271.34
.    May 3, 2022 – Sold 246.9135 PUT options on JP Morgan Chase                                  434.57 (Net of transaction fees of $1/option)
.    May 9, 2022 – Sold 200 PUT options on The Walt Disney Company                         1,760.00 (Net of transaction fees of $1/option)
.    May 25, 2022 – Sold 80 PUT options on Essex Property Trust, Inc.                              824.00 (Net of transaction fees of $1/option)
.    Sub-Total Realized Income                                                                                        $3,289.91
.    Realized Income Earned Year to Date Carry Forward from April 30, 2022                6,401.49
.    Total Realized Earnings Year to Date 2022                                                            $9,691.40  (5.72% Realized Return to Date)

Portfolio Position Activity
.   May 6, 2022 – Purchased 180.1801 shares of Walt Disney Company (Tranche #1) at $111 per share including transaction fees of $1/share.
.   May 12, 2022 – PUT options exercised on The Walt Disney Company (Tranche #2), price dropped below $100 per share, paid $106/share including transaction fees of $1/share.
.   May 12, 2022 – Purchased 198.0198 shares Disney Company (Tranche #3), price dropped below $100 per share, paid $101 per share including transaction fees of $1/share.
.   May 24, 2022 – Purchased 71.6846 shares of Essex Property Trust, Inc. @$279/share including transaction fees of $1/share.

Overall, the Value Investment Fund is performing remarkably well in relation to the balance of the market during the first five 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 9% as indicated by the DOW; this reflects the top 30 companies. The reality is that the market overall is down about 13% (S&P 500, S&P Composite 1500) since January 1, 2022. The S&P 500 and Composite 1500 are the closest comparative indices to this Fund’s selection pool of investments.

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 continue to slip in total worth which would bring some of the existing possible potential investments in line with their respective intrinsic value points and possible ‘Buy’ opportunities. For now, the facilitator has to continue to be patient; which is one of the four core principles of value investing. The Value Investment Fund is currently sitting on a strong cash position at $44,007 (25% 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.

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