Value Investment Fund – February 28, 2022 Results (Monthly Report)

Value Investment Fund

This site’s Value Investment Fund continues to dominate major indices year to date 2022. This is due to the primary principle of risk reduction tied to investments. When a value investor buys a security at less than intrinsic value, there is dramatic resilience against continued losses or sudden market downturns. In effect, there is less volatility. In exchange for this increased security, the value investor gives up instantaneous value growth due to the greater than normal stability of the respective investments. The secret to making a profit is to buy low and wait patiently for the market price recovery; the returns are still considered outstanding. Again, with value investing, expect returns above 30% on average per year. Do not expect returns greater than 40% as these are highly stable companies and well respected; thus, their market prices will rarely deviate dramatically in either direction.

Value Investment Fund – End of February 2022 Report

                                                                                                      February 28, 2022         February 28, 2022       January 31, 2022
REIT Pool                                          # of Shares     Cost Basis       Market Price*         Fair Market Value*     Fair Market Value*
   – No Stock Holdings (All six REIT’s are beginning to settle around 10% higher than intrinsic value)
     
Railways Pool
   
– No Stock Holdings (All five railroads are well above intrinsic value)
Insurance Pool
.   – No Stock Holdings (All five insurance companies are approximately 30% higher than their respective intrinsic values)
Military Contractors Pool
.    – Huntington Ingalls Industries         112.9943             20,000               203.40                     $22,983.04                     $21,039.54
Banking Pool
.    – Wells Fargo (Tranche #1)                   292.0560             10,000                 52.37                      $15,294.97                      $15,420.56
.    – Wells Fargo  (Tranche #2)                   558.9715             20,000                 52.37                        29,273.34                        29,513.69
.    – Wells Fargo (Tranche #3)                           234.3292             10,000                 52.37                        12,271.82                        12,372.58
.       Sub-Totals                                                                  40,000                                                 56,840.13                        57,306.83
Dividend Receivables (HII, Wells Fargo)                                                                                         404.67                             -0-
Cash on Hand (Basis, Gains, Dividends, PUTS)                                                                         98,153.04                        98,153.04
Totals (Starting Cost Basis = $100,000)                      $60,000                                              $178,380.88                     $176,499.41

*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.

During the month of February 2022, the investment fund earned the following dividends:

  • Wells Fargo – 25 cents per share for holders of record on 02/04/22 ($271.34);
  • Huntington Ingalls Industries – $1.18 per share for holders of record 02/25/22 ($133.33).

On 01/14/2022, the 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 current exposure related to PUTs is as follows:

  • Union Pacific Railroad – purchased in Feb 2020 with a strike price of $155/share and an expiration date of January 21, 2023                 $20,000
  • Huntington Ingalls Industries – purchased in January 2022 with a strike price of $170/share and an expiration date of June 17, 2022      $20,000

Market prices on February 28, 2022 are:

  • Union Pacific Railroad                           $247.95  (Strike Price of $155.00)
  • Huntington Ingalls Industries                 $203.40  (Strike Price of $170.00)

Overall, the Fund is performing very well in relation to the balance of the market during the first two months of 2022. As noted in the Wells Fargo one year report, if the Federal Reserve does increase the interest rates and releases Wells Fargo from the growth penalty, this company’s market share price should soar into the mid 60’s. Currently, it is set to sell at $63 per share and $68 per share if the Federal Reserve releases their penalty prior to hitting the preset price of $63/share.

This Fund’s facilitator recognizes that in order to achieve the 30% 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. Secondly, there must be a sudden market wide and/or industry wide downward price adjustment in order to get several potential investments to their buy points (less than intrinsic value). During the last two weeks, the overall market has retrenched due to the Ukraine situation with Russia; but the decline isn’t enough to move any of the members close to their intrinsic value points. Only the pool of REITs is showing a possibility; only if something could trigger a further reduction with that industry. For now, the facilitator has to continue to be patient, which is one of the four core principles of value investing. The Fund is currently sitting on a strong cash position at $98,153 (55% 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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