A very in­ter­est­ing thing oc­curred last week Tues­day that may have gone un­no­ticed by many of us as it failed to make the news.I re­fer to the net as­set val­ue (NAV) of the Cli­co In­vest­ment Fund (CIF), which for the first time since its es­tab­lish­ment on No­vem­ber 1, 2012, has crossed the $25 mark, or the price at which pol­i­cy­hold­ers were re­quired to con­vert their 11-20-year Cli­co ze­ro-coupon bond in­to units, to reach a high of $25.40 as of Mon­day.This in­crease in "val­ue" as op­posed to "price" has to do pri­mar­i­ly with the ap­pre­ci­a­tion in the mar­ket price of the 40,072,299 Re­pub­lic Bank shares, which as unithold­ers would re­call, con­sti­tute more than 86 per cent of the CIF's un­der­ly­ing as­sets with the oth­er 14 per cent be­ing made up of GORTT 4.25 per cent coupon bonds.

My own analy­sis sug­gests the in­crease in the Re­pub­lic Bank share price has to do with the re­cent news that the bank has de­clared af­ter-tax prof­its of $552.5 mil­lion at­trib­ut­able to share­hold­ers for the half-year end­ing March 30, 2013, an in­crease of 0.4 per cent over the pre­vi­ous pe­ri­od.The board has al­so de­clared a half-hear div­i­dend of $1.25 payable on May 31, 2013. What this means is that $50,090,373 would be paid to the CIF on that date. Ac­cord­ing to the trust deed, 95 per cent of this amount or $47,585,855 would then be­come avail­able, along with 95 per cent of the in­ter­est payable on the bonds, for dis­tri­b­u­tion to unithold­ers on Au­gust 21, 2013. My back of the en­ve­lope cal­cu­la­tion puts this amount at around $0.30 per unit.

In case you may have missed it, please per­mit me to re­turn to a dis­tinc­tion I made ear­li­er when I used the term val­ue as op­posed to price in re­la­tion to the CIF units. I be­lieve it is stock mar­ket gu­ru and the CEO of Berk­shire Hath­away, War­ren Buf­fet who said, "Price is what you pay; val­ue is what you get." This quote, I am per­suad­ed, apt­ly and suc­cinct­ly de­scribes what is hap­pen­ing present­ly with the CIF's trad­ing or mar­ket price of $21 as op­posed to its NAV of $25.15.The fa­mous quote is con­tained in the Buf­fet's 2008 an­nu­al re­port to share­hold­ers of Berk­shire Hath­away Inc at the peak of the re­cent glob­al fi­nan­cial cri­sis. He said he learnt it from Ben­jamin Gra­ham, wide­ly recog­nised as the first pro­po­nent of "val­ue in­vest­ing."

Re­act­ing to the mar­ket

At the time, it came in handy for him to ex­plain the very of­ten dis­tinct char­ac­ter­is­tics be­tween the share price and the val­ue of a com­pa­ny. It is al­so es­sen­tial as in­vestors/unithold­ers that we in T&T clear­ly un­der­stand this dis­tinc­tion be­cause stock mar­kets rarely price shares/units cor­rect­ly, as the mar­ket very of­ten over-re­acts on the up­side and on the down­side as in­vestors tend to get car­ried away by pe­ri­ods of "ir­ra­tional ex­u­ber­ance" or "bouts of pan­ic."We must keep in mind that on con­ver­sion of our bonds to units, we bought in­di­rect, part own­er­ship of a busi­ness (in this case, a bank) with tan­gi­ble as­sets (such as prop­er­ty, equip­ment and fi­nan­cial as­sets) and in­tan­gi­ble as­sets, such as the good­will of a brand name.

The val­ue of these as­sets does not nor­mal­ly change just be­cause the stock mar­ket prices fluc­tu­ate from one day to the next. As long as the fun­da­men­tals of the bank are strong, the dai­ly share price changes on the stock mar­ket do not al­ter the as­set val­ue of the busi­ness. Some stock mar­ket crit­ics de­fine a share price as the val­ue of a com­pa­ny mul­ti­plied by in­vestor sen­ti­ment. Since the val­ue of the com­pa­ny tends to be sta­ble while sen­ti­ment is usu­al­ly volatile. Mar­ket sen­ti­ment is af­fect­ed by a num­ber of fac­tors, which could be ei­ther pos­i­tive or neg­a­tive news re­ports in the me­dia dai­ly.On the oth­er hand, in­for­ma­tion of a com­pa­ny's per­for­mance is pub­lished quar­ter­ly. Ac­cord­ing­ly, in the in­ter­im, share prices can be very volatile and com­pa­nies may be­come un­der-val­ued or over-val­ued, pro­vid­ing op­por­tu­ni­ties for in­vestors to cap­i­talise on a gain or ac­cu­mu­late fur­ther shares/units at cheap­er prices for the longer-term.

Prop­er­ty mar­ket

A par­al­lel can be eas­i­ly drawn with the prop­er­ty mar­ket. If you wish to sell your house and some­one of­fers you a low price, you will re­ject it be­cause it isn't in sync with the val­ue that you know your prop­er­ty is worth based on your most re­cent pro­fes­sion­al val­u­a­tion re­port.In fact, you would sen­si­bly wait un­til the right of­fer comes along, en­sur­ing that you do not al­low your­self to be tak­en ad­van­tage of, but more im­por­tant­ly, that you ob­tain fair val­ue for your prop­er­ty. How­ev­er, if a re­al-es­tate agent comes in­to your neigh­bour­hood and starts fu­elling spec­u­la­tion that prop­er­ty prices are like­ly to fall, be­cause there might be a pletho­ra a of sim­i­lar prop­er­ties com­ing on to the mar­ket at pos­si­bly low­er prices.You are like­ly to pan­ic and sell your prop­er­ty at a low­er price even though you know that it is worth more. Know­ing when to sell, hold or buy units is no dif­fer­ent.

Pe­ter Per­me­ll

pper­me­ll@ya­hoo.com