Value Investment Fund – Status on October 31, 2021

Value Investing

“The true strength of a man is in calmness.” Leo Tolstoy

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.

During October, the Fund continued to hold Wells Fargo as its only investment. During the month, Wells Fargo improved $5,166 over September’s ending balance, a 10.48% improvement. 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 improving its percentage of non-interest bearing deposits and the quality of loans. Currently, the Fund has set the sale price for this security at $58 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 $58 per share thus generating an estimated $22,950 return on a $40,000 investment basis over a course of approximately 18 months. This equates to an annual return of about 34%. 

This is another example of how high quality investments, when purchased at good prices, reduce risk dramatically. Yes, there is an offset to this risk elimination design. An investor will never get rich quickly, i.e. in less than one year. High quality investments purchased at less than intrinsic value have very little volatility and as such can only generate good returns. Good returns are defined as greater than 20% per year on average. In most cases, the average annual returns will exceed 30% per year with about one or two years per economic cycle with meager returns in the five to ten percent range. 

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 October 2021.

Value Investment Fund – End of Month Report

                                                                                                         October 31, 2021        October 31, 2021         September 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)
Banking Pool

.    – Wells Fargo (Tranche #1)                   292.0560             10,000                 50.17                      $14,652.45                      $13,262.26
.    – Wells Fargo  (Tranche #2)                   558.9715             20,000                 50.17                        28,043.60                        25,382.90
.    – Wells Fargo (Tranche #3)                           234.3292             10,000                 50.17                        11,756.30                        10,640.89
.       Sub-Totals                                                                 40,000                                                  54,452.35                        49,286.05
Dividend Receivables                                                                                                                       -0-                                    -0-
Cash on Hand (Basis, Gains, Dividends, PUTS)                                                                       116,235.10                      116,235.10
Totals (Starting Cost Basis = $100,000)                      $40,000                                               $170,687.45                    $165,521.15

*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 October, there were no transactions. 

To date (the 2nd fiscal year ending October 21, 2021), 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
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                                                                                    $49,479.64
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/July)                                                                                  658.87
Bank of New York Mellon (Jan/May/July)                                                 223.62
Wells Fargo (Feb/May/August)                                                                   387.27
Sub-Total Dividends                                                                               $3,059.00
Sale of PUTs 
Expired PUTs (See Prior EOM Reports for List)                                     1,592.16
Union Pacific (Feb @$155/Sh) Expires January 20, 2023                       1,769.23 – Market price is currently at $239.46.
Norfolk Southern (March @$190/Sh) Expires January 21, 2022                335.07 – Market price is currently at $293.05.
Sub-Total PUTS                                                                                      $3,696.46
Total Realized Earnings                                                                      $56,235.10

Total dividends earned in Year Two equals $3,059.00, an effective yield of 3.06% on a $100,00 basis. Realized earnings and dividends receivable plus $60,000 of the original $100,000 of basis equals the total capital available ($116,235.10) for investment in other securities. In effect, the Fund now has a very strong cash position at $116,235.10. Almost all of the available options for investment are at or near their all-time highs. Thus, without more available selections, the Fund will have difficulty with good returns in 2022. Given this, the Fund is adding another pool of investments, Military Contractors.

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

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