Value Investment Fund – Status on June 30, 2021

Value Investment Fund

There are no secrets to success. It is the result of preparation, hard work, and learning from failure. – Colin Powell

The Club’s Value Investment Fund glided along during June 2021. The Fund grew a meager .4% driven by the sale of Essex Property Trust on June 18, 2021. Total actual gain during June was $582 as illustrated in the report below. During this time period, the Dow Jones Industrial Average decreased about one-tenth of a percent.

As stated multiple times throughout the lessons and tutorials, high quality stocks have less risk and thus, resist remarkably well when the market goes down or is stagnant 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 June 2021.

Value Investment Fund – End of Month Report

                                                                                                         June 30, 2021                 May 31, 2021              June 30, 2021
REIT Pool                                          # of Shares     Cost Basis     Market Price*         Fair Market Value*     Fair Market Value*
    – Equity Residential                            574.459           $30,000             $76.00                      $43,917.39                   $43,658.88

    – Essex Property Trust (Tranche #1)        48.9644                –                         –                             14,409.73                       Sold
    – Essex Property Trust (Tranche #2)        43.2994                –                         –                             12,742.58                       Sold

    – UDR                                               606.9803             20,000               47.98                         28,303.49                    29,122.91
       Sub-Totals                                                                $50,000                                               $99,373.19                  $72,781.79
Railways Pool
– No Stock Holdings (All six railroads are at or near their all-time highs)
Banking Pool

     – Bank of New York                        232.9373             10,000                 50.23                        11,898.44                    11,700.44
.    – Wells Fargo (Tranche #1)                    292.0560             10,000                 44.29                        13,352.80                    12,935.16
.    – Wells Fargo  (Tranche #2)                   558.9715             20,000                 44.29                        25,556.18                    24,756.85
.    – Wells Fargo (Tranche #3)                           234.3292             10,000                 44.29                            -0-                           10,378.44
.       Sub-Totals                                                                 50,000                                                  50,807.42                    59,770.89
Dividend Receivables (Equity Residential)                                                                                        85.10                         346.40
Cash on Hand (Gains, Dividends, PUTS)                                                                                     6,783.38                     24,732.15
Totals (Starting Cost Basis = $100,000)                    $100,000                                              $157,049.09                 $157,631.23

*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 June 18th, the Fund sold 92.2638 shares of Essex Property Trust netting $302 per share after transaction fees. Net gain earned was $7,864. This equates to an annual return of 74%.

Value Investment Fund – Activity

During the month of June, the following transactions occurred. 

  • Dividends were recorded for UDR for $346.40;
  • Sold Essex Property Trust for a realized gain of $7,863.67;
  • Purchased 234.32.92 for a total basis including fees of $10,000.

To date, the fund has realized earnings as follows:

Gain on sale of Norfolk Southern                                                          $2,678.26
Gain on sale of Union Pacific Railroad                                                   4,620.06
Gain on sale of Comerica Bank                                                               3,677.40
Gain on sale of Essex Property Trust (06/18/21)                                     7,863.67
Sub-Total Gains                                                                                    $18,839.39
Norfolk Southern (Nov)                                                                                92.39
Union Pacific (Dec)                                                                                     111.50
Equity Residential (Dec/March/June)                                                       1,039.20
Essex Property Trust  (Dec/March)                                                             294.58
Comerica Bank (Dec)                                                                                  251.57
UDR (Jan/April)                                                                                          438.84
Bank of New York Mellon (Jan/May)                                                         144.42
Wells Fargo (Feb/May)                                                                                170.20
Sub-Total Dividends                                                                               $2,542.70
Sale of PUTs 
Union Pacific Puts (Nov @$170/Sh) Expires Feb 19, 2021                        330.40
Norfolk Southern Puts (Dec @$210/Sh) Expires March 19, 2021              426.54
Union Pacific (Jan @$175/Sh) Expires May 21, 2021                                595.45
Union Pacific (Feb @$170/Sh) Expires June 18, 2021                               239.77
Union Pacific (Feb @$155/Sh) Expires January 20, 2023                       1,769.23 – Market price is currently at $219.93.
Norfolk Southern (March @$190/Sh) Expires January 21, 2022               335.07 – Market price is currently at $265.41.
Sub-Total PUTS                                                                                      $3,696.46
Total Realized Earnings                                                                      $25,078.55

Total dividends earned in Year Two year-to-date equals $2,543. Cash and dividends receivable equals the total amount realized to date. Realized earnings during June 2021 equals $8,210.07. 

This means the fund has realized a 25.08% return in 253 days for a realized annual return of approximately 36.18%. The unrealized portion is the difference between the fund’s increase since the start date which stands at $57,631 and the realized amount of $25,079. Thus, the unrealized amount is $32,552. If the fund had sold the entire portfolio on June 30th, 2021, it would realize after fees the entire $57,631 which would equate to a return of 57.6% in 253 days. On an annualized basis this equals an 83.1% return. 

The key for value investors is time. The risk of the respective holdings going down dramatically is extremely low as the intrinsic value tied to those respective holdings indicate an excellent margin of safety. Thus, the most likely outcome over the next three to four months is continuous improvement in value; albeit, slower growth than the first eight full months in this fiscal year. Current indications for the respective investments are:

  • Equity Residential – Current target market recovery price is $83 per share.
  • UDR – Current target recovery point is $52 per share and it is anticipated that this will occur during the summer of 2021.
  • Bank of New York – this investment is in the banking pool. The current target market price is $55. The Fund may continue to hold this respective stock once it surpasses $55 as there are no other options for investment currently. A stop-loss order may be used to protect the downside risk.
  • Wells Fargo – the historical high for Wells Fargo is $58 per share. The current value is a direct reflection of the inability to grow due to the cap penalty imposed by the Federal Reserve. It is expected that this cap will be released by the end of the first quarter of 2022. In the interim, the stock will continue to grow slowly into the upper-40’s. Once this cap is released, the facilitator of this pool firmly believes the stock price will surpass the $58 per share prior peak price. The overall quality of Wells loan pool along with the offsetting liability pool has improved significantly over the last three years while the bank makes improvements to its internal controls. This is a stock posed to explode once that cap is removed.

Overall, the current status of the fund is performing at a better than satisfactory rate and tending towards the initial calculated return anticipated. 

The standard for transaction fees is $1 per share, which is actually well above actual trading costs. Thus, the reported position above is very conservative and it is now a matter of waiting for results to happen (patience). Act on Knowledge.

Value Investing Episode 1 – Introduction and Membership Program

© 2021 – 2022, David J Hoare MSA. All rights reserved.

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