Value Investment Fund Status Week 25 – Continued Growth

Value Investment Fund

This past week, the Value Investment Fund grew 2.7% reaching a new all time high at $148,147 off a $100,000 investment 25 weeks ago.

This past week, the banking pool propelled the fund higher with its 5% growth during the week. Wells Fargo and Bank of New York released their financial results from the first quarter. Wells Fargo’s 1st quarter results surpassed even the most optimistic expectations with earnings of $4.7 Billion on $18.1 Billion of revenue (26%). This stock is poised to explode once the Federal Reserve releases its cap on the volume of assets Wells Fargo is allowed to have on its balance sheet. The fund facilitator is adjusting its expected recovery price by $2 to $55 and expects this market price during the first quarter of 2022. 

The following illustrates the current position of the banking pool of investments:

Name                                 Purchase Price    Intrinsic Value    Current Market Price*   Historical Peak Price
Wells Fargo (Tranche #1)           $34.24                  $40                          $42.84                                $64.19
Wells Fargo (Tranche #2)           $35.78                  $40                          $42.84                                $64.19
Bank of New York Mellon         $42.93                  $45                           $45.07                               $57.71

Wells Fargo is generating the real value in this pool of the Investment Fund. If they end up with a second quarter in a row of similar earnings, this stock will easily break $50 per share. In addition, it will soon announce its first quarter dividend; but, the fund does not anticipate any increase with the dividend payout over the prior quarter amount of 10 cents per share. From this site’s article about calculating intrinsic value for bank stocks, compliance with federal agencies plays a critical role in overall financial structure of banks. A recent Federal Reserve decision to increase the internal capitalization requirements for banks to add more financial security to the banking industry will force the hand of Wells Fargo to limit its dividend payout.

Value Investment Fund – Portfolio Status

Here is the current status of the Value Investment Fund:

REIT Pool                                          # of Shares     Cost Basis     Market Price*         Fair Market Value
    – Equity Residential                            574.459           $30,000             $71.62                      $41,142.75

    – Essex Property Trust (Tranche #1)        48.9644             10,000              288.49                        14,125.74
    – Essex Property Trust (Tranche #2)        43.2994             10,000              288.49                        12,491.44

    – UDR                                               606.9803             20,000               44.02                         26,719.27      
       Sub-Totals                                                                $70,000                                               $94,479.20
Railways Pool
– No Stock Holdings
Banking Pool

     – Bank of New York                        232.9373             10,000                 45.07                       10,498.48
.    – Wells Fargo (Tranche #1)                   292.0560             10,000                 42.84                       12,511.68
.    – Wells Fargo  (Tranche #2)                   558.9715             20,000                 42.84                       23,946.34
.       Sub-Totals                                                                 40,000                                                 46,956.50
Dividend Receivables (Essex & UDR)                                                                                            413.16
Cash on Hand (Gains, Dividends, PUTS)                                                                                     6,298.01
Totals (Starting Cost Basis = $100,000)                    $110,000                                              $148,146.87

*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.

This new peak value for the value investment fund illustrates well the return when an investor exercises the four principles of value investing. The four principles are:

  1. Adhere to risk reduction by only purchasing securities from top performing companies such as DOW members, S&P 500, S&P Composite 1,500 and large-cap companies.
  2. Purchase the investments at or below intrinsic value; use a safety of margin in order to buy low.
  3. Sell high by developing good models for each industry pool which allows the investor to have a high level of confidence that the securities market price will recover quickly back to a prior peak or higher.
  4. Be patient. 

This new peak value position (through 25 weeks) breaks out as follows:

Realized Gains to Date                             $10,976 (3 Full Transactions)
Dividends Earned to Date                            2,039
Sales of PUTs (Options)                              3,696
Unrealized Gains:
   –  REITS                                                  24,479
   – Banks                                                      6,957
Sub-Total Realized & Unrealized            $48,147
Initial Investment                                     100,000
Value Investment Fund                          $148,147 

As stated mulitple times in prior posts, the facilitator expects the total return of the value investment fund to be more than 52% once the fiscal year-end is reached in mid-October. The lower growth rate over the next six months is due to an expected slowing of the values for all the existing investments. There are currently no alternative investments to switch to at this time. This is an identified flaw with this fund’s investment pool, not value investing as an investment method. As explained in Security Analysis, written by Benjamin Graham and David Dodd, they advocated for more than 40 separate investments in an investor’s portfolio. They state it reduces risk significantly related to opportunity. They are correct. Right now, the Value Investment Fund has 18 separate potential investments. All of them are performing well. This means there are no opportunities to invest (buy low) which will affect the return on investments in the future. In order for this portfolio to have a long-term stability and good returns year after year, the fund must develop two more sets of pools of investments. This is a lot of work. But it has to get done in order for next year to have a reasonable return (at least 20%) on the portfolio. The facilitator is currently working on a fast food industry pool of potential investments. It is expected to be available to all members around July 1, 2021. Act on Knowledge.

Value Investing Episode 1 – Introduction and Membership Program

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

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