Overall, the Value Investment Fund improved 2.6% of the September 30, 2022 balance.
Value Investment Fund – Status on October 31, 2022
. October 31, 2022 September 30, 2022 October 31, 2022
. # of Shares Cost Basis Net Market Price* Net Fair Market Value* Net Fair Market Value*
REITs
. – Essex Property Trust, Inc. (Tranche #1) 71.6846 $20,000 $221.24 $17,292.48 $15,859.50
. – Essex Property Trust, Inc. (Tranche #2) 77.7000 20,000 221.24 18,743.57 17,190.35
. – Essex Property Trust, Inc. (Tranche #3) 100.0000 22,221 221.24 -0- 22,124.00
. – Essex Property Trust, Inc. (Tranche #4) 180.0000 44,980 221.24 -0- 39,823.20
. Sub-Totals 429.3846 107,201 $36,036.05 $94,997.05
Entertainment
. – The Walt Disney Company (Tranche #1) 180.1801 20,000 $105.54 $16,816.21 $19,016.21
. – The Walt Disney Company (Tranche #2) 200.0000 21,200 105.54 18,666.00 21,108.00
. – The Walt Disney Company (Tranche #3) 198.0198 20,000 105.54 18,481.19 20,899.01
. Sub-Totals 578.1999 61,200 $53,963.40 $61,023.22
Banking
. – Wells Fargo (Tranche #1) Sold $11,454.44
. – Wells Fargo (Tranche #2) Sold 21,922.86
. – Wells Fargo (Tranche #3) 100.00 4,267.50 44.99 9,190.39 $4,499.00
. Sub-Totals 100.00 4,267.50 $42,567.69 $4,499.00
Dividend Receivables (Essex Property Trust) 328.65 -0-
Cash on Hand (Basis, Gains, Dividends, PUTS) 25,131.77 $1,615.11
Totals (Starting Cost Basis = $100,000) $172,668.50 $158,027.55 $162,134.38
Accrual adjustment for taxes 2,417.20 3,401.79
Totals Net of Taxes (Recapture) $160,444.75 $165,536.16
This portfolio’s value is AFTER TAXES of 28% on all realized gains. Total taxes paid to date 25,924.50 25,924.50
Comparative Gross Return Since Inception $186,369.25 $191,460.60
Unrealized Earnings (Value of Respective Market Prices Less Cost Basis/Fees at Point of Sale) $(8,632.57) $(12,149.23)
*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.
Take note, unrealized earnings decreased $3,517 during the month, yet the Fund’s overall balance improved just over $5,000. This is directly attributable to the fulfillment of the two PUT contracts to purchase Essex Property Trust. In effect, the Fund paid approximately $241 per share to buy Essex and the market price is $221 per share. This $20 per share differential on 180 shares accounts for the entire $3,500 decrease in unrealized earnings during this period. Based on intrinsic value calculations for Essex, the market price per share will recover to more than $300 per share within eighteen months. This will generate a return on investment greater than 15% annualized. It is now just a matter of time – ‘patience‘, one of the four principles involved with value investing.
Value Investment Fund – Potential Obligations
The Value Investment Fund’s current exposure related to PUT options is as follows:
- Union Pacific Railroad – sold in Feb 2020 with a strike price of $155/share and an expiration date of January 21, 2023 $20,000
- JP Morgan Chase – sold in May 2022 with a strike price of $80/share and an expiration date of June 16, 2023 $20,000
- Norfolk Southern Corporation – sold in September (200 Shares) with a strike price of $145 and an expiration date of January 21, 2024 $29,000
Market prices on October 31, 2022 are:
- Union Pacific Railroad (Expiration on 01/21/2023) $197.14 (Strike Price of $155.00) Current Deviation = 27.19%
- JP Morgan Chase (Expiration on 06/16/2023) $125.88 (Strike Price of $80.00) Current Deviation = 57.35%
- Norfolk Southern Corp (Expiration on 01/21/24) $228.07 (Strike Price of $145.00) Current Deviation = 57.29%
*Deviations > 25% are considered favorable.
Value Investment Fund – Earnings Year-To-Date
First Quarter Earnings:
. Sold Huntington Ingalls 03/07/22 Net Realized Gain $5,557.05
. Dividends Earned (First Quarter 2022) 271.34
. Net Earnings from Sales of PUT Contracts 573.10
. First Quarter Earnings $6,401.49
Second Quarter Earnings:
. Net Earnings from Sales of PUT Contracts $3,908.57
. Dividends Earned 607.46
. Second Quarter Earnings $4,516.03
Third Quarter Earnings:
. Net Earnings from Sales of PUT Contracts $1,040.00
. Dividends Earned 654.26
. Third Quarter Earnings $1,694.26
Fourth Quarter Earnings:
. Realized Gains from Sale of Wells Fargo $7,623.19
Total Realized Earnings Year to Date 2022 $20,234.97 (11.93% Realized Return to Date)
Taxes Paid to Date 2022 – $3,531.30 (28% of the $12,611.78 Realized Thru September 30th 2022)
© 2023, David J Hoare MSA. All rights reserved.
