Performance for July 2022
The Value Fund increased 16.3% in July 2022 and is down 7.9% since the fund started at the beginning of February 2022.
Performance vs the Market
The fund outperformed both the S&P 500 and the Nasdaq Composite Indices both of which were strongly up 9.1% and 12.3% respectively for the month.
We are in the middle of earnings season in the US and the majority of results have come in stronger than the market expected. This coupled with certain economic data has driven a recovery in the market after an incredibly weak 6 months.
It is hard if not impossible to predict if the worst is behind us. Given the energy crisis the world is facing, the fertilizer and food shortages globally, and the need for businesses to increase prices, it’s hard to see how the markets don’t take more strain if the status quo remains. However, we are not macroeconomic investors and look to buy companies that will do well in the long term and use market weakness as an opportunity to buy bargains.
The S&P 500 is down 13.3% for the year while the Nasdaq Composite is down over 20% even with the strong performance in July.
Comments
By far the largest contributor to the Value Fund’s performance in July was our real estate investment company whose share price increased over 130% during the month. The share price doubled after management announced that it wants shareholder approval to sell off the assets of the company and dissolve. Even with July’s strong performance, by our conservative calculations, the real estate assets are easily worth double the company’s current valuation.
Performance was also driven by a recovery of our other property sector investments. With record inflation and rising interest rates, the fear has been that the US could be in for another housing collapse however economic data and post US banks’ second-quarter earnings, US households and homeowners are in a far healthier financial position than the market initially feared. This could of course change if the headwinds the economy is facing persist.
Performance was also helped by the share price appreciation of our medical technology company after it reported record results and increased full-year guidance. While performance was slightly offset by negative earnings announcements from two of our investments one of which we significantly reduced our exposure to as we believe the deterioration of earnings might be permanent. The other might offer us an opportunity as the market is punishing the company’s short-term performance even though the long-term outlook could be very favorable.
Conclusion
Even after a strong month, the average weighted valuation of the portfolio is only 8.0x operating income.
Our two largest positions, both in the property sector, have at least 100% upside according to our conservative estimates. We remain optimistic that both these investments have a high probability of working out as planned.
We are excited about our portfolio as a whole, so much so that we will be adding more of our own money to the portfolio during the month. This will have no impact on the portfolio other than lowering the average purchase price for the majority of stocks that we already own. We will update you before we do add to the fund.
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