Value Investment Fund Status Week 26 – Halfway Point Report
Halfway into the fiscal year and already, the value investment fund has surpassed the desired annual return. When the markets closed on Friday, April 23, 2021; the fiscal year to date return for the fund stands at 51.4%. The annual goal is to earn at least 30% returns. Even with this outstanding performance, there is still a lot of work to get done. The current three pools are inadequate to ensure excellent returns in the next fiscal cycle. However, even with this recognized discrepancy, the value investment fund continues to perform well because it adheres to the four core principles of value investing.
This past week, the Value Investment Fund grew 2.2% reaching a new all time high of $151,438 off a $100,000 investment 26 weeks ago (half-year point).
The fund is well ahead of schedule and is on track to surpass 56% return for fiscal year 2021. Driving the unrealized gains are the REITs. This table illustrates how much has accrued since the purchases in late October, early November. Unlike many other investments, there are no key performance indicators to assist investors during interim accounting periods. With REITs, an investor has to wait for the quarterly report to determine performance. Given the sound value of the underlying real estate, there is no concern regarding each position taken by the value investment fund.
Name Purchase Price Intrinsic Value Current Market Price* Historical Peak Price
Equity Residential $52.23 $64 $73.58 $88.37
Essex (Average) $216.77 $262 $296.33 $331.30
UDR, Inc. $32.95 $41 $45.78 $50.93
All three of the real estate investment trusts’ investments will report their first quarter results this Tuesday morning. Unless there is a significant setback with collection of rents by all three, the pool’s aggregated value will continue to march towards their historical respective peak market prices which in turn will drive the investment fund’s unrealized gains and the overall return. Even if all three report poor performance during this past quarter, the worse case is that the overall respective market prices drop 15%; thus, the worse case outcome for the fiscal year will end up at around 41% for the value investment fund.
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 $73.58 $42,268.69
– Essex Property Trust (Tranche #1) 48.9644 10,000 296.33 14,509.62
– Essex Property Trust (Tranche #2) 43.2994 10,000 296.33 12,830.91
– UDR 606.9803 20,000 45.78 27,787.56
Sub-Totals $70,000 $97,396.78
– No Stock Holdings
– Bank of New York 232.9373 10,000 46.60 10,854.88
. – Wells Fargo (Tranche #1) 292.0560 10,000 42.86 12,517.52
. – Wells Fargo (Tranche #2) 558.9715 20,000 42.86 23,957.52
. Sub-Totals 40,000 47,329.92
Dividend Receivables (UDR) 220.33
Cash on Hand (Gains, Dividends, PUTS) 6,490.84
Totals (Starting Cost Basis = $100,000) $110,000 $151,437.87
*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:
- 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.
- Purchase the investments at or below intrinsic value; use a safety of margin in order to buy low.
- 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.
- Be patient.
This new peak value position (through 26 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
– REITS 27,397
– Banks 7,330
Sub-Total Realized & Unrealized $51,438
Initial Investment 100,000
Value Investment Fund $151,438
As stated multiple times in prior posts, the facilitator expects the total return of the value investment fund to be more than 34% once the fiscal year-end is reached in mid-October. It has already surpassed this point and it is now expected to hit 56% by fiscal year-end. 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 monies into 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 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.