Railroad Fund – Update 02/26/2020 Coronavirus Impact

The last two days have been expensive. Norfolk Southern’s value has dropped to $190.07. The Value Investment Fund currently has 49.060606 shares in the Railroad Fund, bought at two different prices two days ago. Total investment is $10,000. Thus, the current market value is $9,324.95, indicating a decrease of $675.05 in two days.

Many of you are wondering what the Fund will do now, given this sudden drop in value. The answer is “Nothing“. Value investing means having faith in the buy/sell points. I’m going to wait now for the stock to come back up. I would imagine the market will recover once this coronavirus scare passes. Once the weather warms up, the flu bug generally goes away; thus, come May/June, this virus will die a natural death, and the market will recover. As always, patience is important here.

*As a side note, update on 12/31/2020; the virus information back in Feb. 2020 was limited in scope, i.e., there was more misinformation than facts; the result is that the COVID-19 scare turned into a pandemic affecting the markets and how society conducted day-to-day activities. 

Still, overall, the fund’s market value is the stock price at the close of business today $9,324.95, plus cash in the bank of $1,304.65 for a total of $10,629.60.

I noticed that Union Pacific (I consider Union Pacific the highest quality stock within the six Class I railways of the railroad fund) is now at $165.00 even. A 17% drop is the requirement for me to buy; see my article: Union Pacific – Buy/Sell Model. The prior high was on 01/24/2020 at 9:55 AM at $188.90. A 17% drop means the price would need to dip to $156.79 before I can purchase any stock. If this happens, I will use the excess cash of $1,304.65 to make a purchase. I will go one step further: if my Norfolk Southern increases in value back to my buy point of about $202 per share, I’ll sell half to buy Union Pacific at this extremely low price. As stated in several of my articles, the key is to purchase quality stock at a good price. Union Pacific, as of this month, is the best quality stock of the existing six railroads to choose from. I am simply reducing my risk at no cost to the fund. It is unlikely Union will drop while Norfolk Southern increases, but at least I conveyed my thinking related to economic substitution and its value in reducing risk. ACT ON KNOWLEDGE.