Value Investment Fund – Status on November 30, 2020

November 30th 2020 fell on a Monday, thus the values below also includes my weekly update, just extended by one extra day. The following is the status of the Value Investment Fund on 11/30/2020:

REIT Pool                               # of Shares     Cost Basis     Market Price*         Fair Market Value
    – Equity Residential               574.459           $30,000             $57.92                      $33,272.66

    – Essex Property Trust             48.9644           10,000             244.76                        11,984.53
    – UDR                                    606.9803           20,000               37.50                        22,761.76      
       Sub-Totals                                                  $60,000                                               $68,018.95
Railways Pool
– Union Pacific                     114.9557           20,000              203.08                         23,345.20
Dividend Receivables (Norfolk Southern & Union Pacific)                                              203.89
Cash on Hand (Sale of Norfolk Southern & Options)                                                  23,008.66
Totals                                                             $100,000                                              $114,576.76

*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.

On October 31, 2020, the Investment Fund’s balance was $95,641.24. During the month of November, the DOW Jones Industrial Average increased 11.7% from 26,502 to 29,603. This club’s fund, increased 19.79%. This is a reflection of why quality stocks are superior when a market wide recovery occurs. Review the first principle of value investing – risk reduction. Only buy quality stocks as it limits losses and allows for quicker recoveries. This provides two unique benefits. First, faster recoveries reduce exposure to losses and secondly, and very important, faster recoveries quicken the frequency of buy/sell transactions; thus, dramatically improving overall financial performance of a fund. This is explained in detail in Phase Two of the membership program.

During the month of November, three transactions occurred. 

  1. The fund sold Norfolk Southern stock and netted after fees $2,770.65 for a whopping 13.85% return on investment on  in 13 days.
  2. Prior to the sale of Norfolk Southern, a dividend was declared for any holder of stock on November 6, 2020, thus the fund has a receivable from Norfolk Southern for $92.39.
  3. Union Pacific also declared a dividend for holders of record on November 30th and as such, a dividend receivable exists from Union Pacific for $111.50.

Take note, one of the benefits of holding high quality stocks is that dividends are often additional value for value investors. Thus, to date, the fund has realized earnings as follows:

  • Gain on sale of Norfolk Southern after all fees                                     $2,678.26 *Does not include dividends.
  • Sale of Union Pacific Puts (net of fees)                                                      330.40
  • Norfolk Southern Dividends                                                                         92.39
  • Union Pacific Dividends                                                                             111.50
  • Total Realized Earnings                                                                         $3,212.55

This means the fund has realized a 3.21% return in 43 days for annual return of approximately 27.25%. The unrealized portion is the difference between the fund’s increase since the start date which stands at $14,577 and the realized amount of $3,213. Thus, the unrealized amount is $11,364. If the fund were to sell on November 30th the entire portfolio, it would realize after fees the entire $14,577 which would equate to a return of 14.58% in 43 days. On an annualized basis this equals 123% return. Naturally, this is unrealistic. The only reason the fund is in such good shape as of November 30th is due to the sudden overall economic recovery bounce due to the positive results of the Phase 3 Covid-19 vaccine results. 

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 safety margin. Thus, the most likely outcome over the next nine to ten months is continuous improvement in value. This is where the fourth principle of patience comes into play for value investors. 

Go back to the principles of value investing, it has the following core tenet and principles:

1) Buy Low, Sell High – 
the primary tenet of business is to buy low and sell high and earn the difference as profit. With stocks, value investors are looking for deep discounts from respective businesses within set pools of investment. In this case, the value investing fund has two pools, REIT’s and Railways. During year one of the fund’s existence (Oct 21, 2019 through October 20, 2020) there was only one pool within the fund. During this time period, the fund’s actual return on investment was 23.52%, but it crushed the Dow Jones Industrial Average by a whopping 353% during the same time period.


A) Risk Reduction – the best risk reduction tool available to value investors is understanding the business valuation principle of stability of earnings. Only high quality stocks can provide long-term positive earnings for extended periods of time. This means, there are only two sets of stock groups to use – DOW and Large-Caps. High quality, stable companies practically eliminate downside risks related to investments. Value investors embrace these two groups of stocks; in effect, a value investor only looks at the top 2,000 companies for potential investments.

B) Intrinsic Value – purchasing stock at or below the true value of the company is the best opportunity to maximize gains for an investment. Understanding intrinsic value is essential with the buy low element of the primary tenet of business.

C) Financial Analysis – each investment within each pool is evaluated based on business ratios and current financial performance including the use of key performance indicators. A set of buy/sell triggers are calculated and used indefinitely (they are updated about every year). As an example, for the Railways pool:

It turns out that all six of the railways have the same financial characteristics:

    • All generate a profit, the lowest net profit within the group is 22.8% (prior to Oct 2019),
    • All have positive operational cash flow and good free cash flow,
    • All issue dividends to their shareholders,
    • All have gross profit margins > 34.5% with the average over 37%,
    • All have low administrative overhead generating high operational profit margins,
    • All have similar 10 year growth lines related to share price.

Within this pool, each company is evaluated separately, and the buy/sell triggers are set for the upcoming few years. With Union Pacific, the buy/sell triggers are:

    • Buy Point – 18% market price decrease from prior peak
    • Sell Point – 102% of prior peak

Review the quarterly and annual reports in detail and determine overall financial performance and the approximate time to recover from a low. Although time is on a value investor’s side, time is also an enemy. Faster recovery periods, accelerate returns on investments exponentially. Longer recoveries effectively reduce the overall return on investment.

Adhere to the core principles of investing and do not behave with “Irrational Exuberance” (Alan Greenspan). All purchases and sales are based on preset values and automatically performed using computer orders.

D) Patience – the key to success is to have faith in the underlying financial and performance values of the respective stock purchases. Utilizing business ratios and the details from the respective annual and quarterly reports of the respective purchases, an owner of stock simply waits for the stock price to recover to a prior peak and then disposes of the stock for outstanding gains. In order to reduce volatility and broaden the available pool of investments, value investors need additional pools of investments to maximize returns on excess cash available. Review Lessons Learned for additional understanding.

Overall, I’m satisfied with the current status of the fund. Although the fund is currently in an excellent position due to the sudden market wide improvement, I need to find another investment for the cash in order to maximize the fund’s resources.

My standard for transaction fees is $1 per share, which is actually well above actual trading costs. Thus, my reported position above is very conservative and I now just wait for results to happen (patience). In the meantime, I will continue to evaluate the respective companies within each pool and develop a third pool to add to the investment funds opportunities. Act on Knowledge.

Value Investing

Do you want to learn how to get returns like this?

Then learn about Value Investing. Value investing in the simplest of terms means to buy low and sell high. Value investing is defined as a systematic process of buying high quality stock at an undervalued market price quantified by intrinsic value and justified via financial analysis; then selling the stock in a timely manner upon market price recovery.

There are four key principles used with value investing. Each is required. They are:

  1. Risk Reduction – Buy only high quality stocks;
  2. Intrinsic Value – The underlying assets and operations are of good quality and performance;
  3. Financial Analysis – Use core financial information, business ratios and key performance indicators to create a high level of confidence that recovery is just a matter of time;
  4. Patience – Allow time to work for the investor.

If you are interested in learning more, go to the Membership Program page under Value Investing section in the header above. 

Join the value investing club and learn about value investing and how you can easily acquire similar results with your investment fund. Upon joining, you’ll receive the book Value Investing with Business Ratios, a reference guide used with all the decision models you build. Each member goes through three distinct phases:

  1. Education – Introduction to value investing along with terminology used are explained. Key principles of value investing are covered via a series of lessons and tutorials.
  2. Development – Members are taught how pools of investments are developed by first learning about financial metrics and how to read financial statements. The member then uses existing models to grasp the core understanding of developing buy/sell triggers for high quality stocks.
  3. Sophistication – Most members reach this phase of understanding after about six months. Many members create their own pools of investments and share with others their knowledge. Members are introduced to more sophisticated types of investments and how to use them to reduce risk and improve, via leverage, overall returns for their value investment pools.

Each week, you receive an e-mail with a full update on the pools. Follow along as the Investment Fund grows. Start investing with confidence from what you learn. Create your own fund and over time, accumulate wealth. Joining entitles you to the following:

  • Lessons about value investing and the principles involved;
  • Free webinars from the author following up the lessons;
  • Charts, graphs, tutorials, templates and resources to use when you create your own pool;
  • Access to existing pools and their respective data models along with buy/sell triggers;
  • Follow along with the investment fund and its weekly updates;
  • White papers addressing financial principles and proper interpretation methods; AND
  • Some simple good advice.

Value Investment Club

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