By /

56.67% Return on Investment: Union Pacific Railroad

When a value investor utilizes the four core principles of value investing, good returns follow. This is an example with Union Pacific Railroad.

On February 27, 2020, I used the excess cash in my Railroad Fund and purchased 8.268268 shares of Union Pacific Railroad. The buy price was $156.39.  See my article written on the 27th of February: Railroad Fund Update for confirmation. Including $1 per share for transaction costs, I invested $1,304.65 to purchase those 8 shares. Today, when the market opened, the trigger for the sale occurred. Based on the value investing principle I’ve written about over several articles and a book: Value Investing with Business Ratios, my sale price was set for $182.54. After paying transaction fees, I netted $1,501.02. The gain equals $196.37.

I didn’t know this until today, after doing my research. Since I was an owner of record on February 28th, I earned a dividend of 97 cents per share; thus, on March 30th, my railroad fund received $8.02. Just another benefit of the investing principle here.

Altogether, I earned $204.39 over 99 days. This equates to a simple annual return of 56.67%.

Again, value investing is a systematic process of investing whereby the investor uses ratios and comparative analysis of similar investments over an extended period of time. In this case, I compared the six publicly traded Class I railways in the United States. Then, based on the results, I exercise buy and sell points for each stock within the fund. In this case, Union Pacific Railroad’s prior peak (high selling price) was $188.96. From the analysis, I determined that a minimum 17% drop in price from the peak warranted a buy trigger. In my evaluation of Union Pacific Railroad, I determined that the opportunity to buy only happens about once every 3 years. The coronavirus market impact was the underlying force to drove the price down. I took advantage of this and bought low and sold high, the number one tenet of business. 

As of today, my overall railroad fund stands at $11,068.99. This fund has grown 10.07% since inception, whereas the Dow Jones Industrial Average has only grown 1.2% in the same period.

Principles of Value Investing

  1. Use a group of stocks of a similar nature and market capitalization;
  2. Perform an analysis using business ratios;
  3. Set buy/sell triggers for each respective investment within the pool;
  4. Update the analysis at least 2 times per year;
  5. Exercise the buy/sell points; AND
  6. Time is the number one asset.

It works, I’m proving it with this fund.

Just to make sure readers understand:

  1. This series is written to vouch for my decisions based on the model and corresponding sub-models (for each stock). There are multiple articles related to this in this series.
  2. It exists to prove a theory that value investing is a superior form of investing with reduced risks. If you read the series from the beginning, you will understand.
  3. I do not own railroad stock, and I caution every reader that you must be well versed in market terminology and the associated formulas (which I do write about) to invest in any publicly traded instrument.
  4. Investing in the market is risky, and as such, I implore readers to learn first and only risk a small portion of their assets in open market trading.
  5. I am not advocating or pushing readers to buy or sell their investments; seriously, Class I Railways are all in the top 500 companies in the market. There is no way my opinion can influence others; it is merely provided to validate my value investing concept. You can lose money, but not all of it; I don’t gain from saying buy this or sell that.  

Act on Knowledge.

Scroll to Top