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 drive 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 time period.
Principles of Value Investing
- Use a group of stocks of similar nature and market capitalization;
- Perform an analysis using business ratios;
- Set buy/sell triggers for each respective investment within the pool;
- Update the analysis at least 2 times per year;
- Exercise the buy/sell points; AND
- Time is the number one asset.
It works, I’m proving it with this fund.
Just for the purposes of making sure readers understand:
- This series is written to vouch my decisions based on the model and corresponding sub-models (for each stock). There are multiple articles related to this with this series.
- 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.
- 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.
- Investing in the market is risky and as such, I implore upon readers to learn first and only risk a small portion of your assets in open market trading.
- 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.