Value Investment Fund – Status on November 30, 2021

Value Investing

“Legend-class National Security Cutters (NSC) are the flagships of the U.S. Coast Guard. They are the largest and most technologically advanced ships in the Coast Guard’s fleet, with capabilities for maritime homeland security, law enforcement and national security missions” – Huntington Ingalls Industries.

During November, the Fund continued to hold Wells Fargo as an investment from the Banking Pool. As stated in other articles related to Wells Fargo, this is a long-term investment tied to the removal of the Federal Reserve penalty now going into its fourth year. This penalty is designed to prevent Wells Fargo from growing beyond its current $1.9 Trillion of assets. In the interim, Wells Fargo has improved the quality of its balance sheet by enhancing its percentage of non-interest bearing deposits and the quality of loans. The Fund updated the sale price for this security from $58 to $63 per share. Initially, it was hoped that the Federal Reserve restriction would be lifted by year-end 2021, but that is looking unrealistic now. If the restriction is lifted by end of June 2022, the stock should reach the target goal of $63 per share thus generating an estimated $27,292 return on a $40,000 investment basis over a course of approximately 18 months. This equates to an annual return of about 43%. 

As stated in October’s report, the Value Investment Fund created the Military Contractors Pool of potential investments and researched several opportunities. One of those opportunities is Huntington Ingalls Industries. On November 30, 2021, the Fund proceeded to purchase 112 shares of Huntington Ingalls due to the market price hitting the required margin of safety requirements related to intrinsic value. Please read Huntington Ingalls Industries – Market, Intrinsic and Value Investing Prices for more information about this particular company. From this article, even if this investment takes two years to recovery to the market recovery price of $251, it will still generate in excess of 23% annual returns. 

Again, Value Investing is about earning good returns, year after year. It is not a get rich quick scheme; it is a thoughtful well laid out plan to improve one’s wealth over time.

Here is the Value Investment Fund’s status report for the end of November 2021.

Value Investment Fund – End of Month Report

                                                                                                      November 30, 2021        October 31, 2021         November 30, 2021
REIT Pool                                          # of Shares     Cost Basis       Market Price*         Fair Market Value*     Fair Market Value*
   – No Stock Holdings (All six REIT’s are at or near their all-time highs)
Railways Pool
– No Stock Holdings (All six railroads are at or near their all-time highs)
Insurance Pool
.   – No Stock Holdings (All five insurance companies are at or near their all-time highs)
Military Contractors Pool
.    – Huntington Ingalls Industries         112.9943             20,000               176.51                      Not Held                        $19,944.62
Banking Pool
.    – Wells Fargo (Tranche #1)                   292.0560             10,000                 46.78                      $14,652.45                      $13,662.38
.    – Wells Fargo  (Tranche #2)                   558.9715             20,000                 46.78                        28,043.60                        26,148.69
.    – Wells Fargo (Tranche #3)                           234.3292             10,000                 46.78                        11,756.30                        10,961.92
.       Sub-Totals                                                                 40,000                                                  54,452.35                        50,772.99
Dividend Receivables                                                                                                                        -0-                                   217.07
Cash on Hand (Basis, Gains, Dividends, PUTS)                                                                       116,235.10                        96,235.10
Totals (Starting Cost Basis = $100,000)                      $60,000                                               $170,687.45                    $167,169.78

*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.

Value Investment Fund – Activity

During the month of November, there were two transactions:
1) Wells Fargo issued dividends worth $217.07;
2) Purchased 112.9943 shares of Huntington Ingalls at $177/share including transaction fees of $1/share for a total investment of $20,000. 

During 2021, the fund has realized earnings as follows:

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
Gain on Sale of Equity Residential (07/15/21)                                       17,105.64
Gain on Sale of UDR (07/12/21)                                                            10,956.00
Gain on Sale of Bank of New York Mellon (08/12/21)                            2,578.61
Sub-Total Gains                                                                                    $46,801.38
Equity Residential (March/June)                                                                 692.80
Essex Property Trust  (March)                                                                     192.83
UDR (Jan/April/July)                                                                                  658.87
Bank of New York Mellon (Jan/May/July)                                                 223.62
Wells Fargo (Feb/May/August/Nov)                                                           604.34
Sub-Total Dividends                                                                               $2,372.46
Sale of PUTs 
Expired PUTs (See Prior EOM Reports for List)                                        756.94
Union Pacific (Feb @$155/Sh) Expires January 20, 2023                       1,769.23 – Market price is currently at $235.64.
Norfolk Southern (March @$190/Sh) Expires January 21, 2022                335.07 – Market price is currently at $265.27.
Sub-Total PUTS                                                                                      $2,861.24
Total Realized Earnings                                                                      $52,035.08

Total dividends earned in 2021 to date equals $2,372.46, an effective yield of 2.04% on a $116,231 basis as of 01/01/2021. The Fund carries a strong cash position due to the fact that all 36 potential investments within the six pools of investments are currently trading at or near their all time highs. The only exceptions to this are a few of the companies within the Military Contractors Pool. Even these are now trading well above their intrinsic value. Thus, so far in the fourth quarter, the Fund is unable to keep up or surpass the growth rates of the DOW, S&P Indices and others. Continued patience is warranted while the Club waits on the market to experience some downward pressure. In the meantime, the current two investments were purchased well below their intrinsic values and it is a matter of time before they will recover to their prior economic highs. Act on Knowledge.

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

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