Railways Pool<\/span><\/strong><\/h1>\n

The transportation sector of the United States economy is composed of nine industrial groups. One particular group moves more volume of tonnage based on ton miles than any other form of transportation – railroads. <\/a>In accordance with the Federal Department of Transportation<\/span><\/strong><\/a>, railroads move 39.5% of all freight in the US (based on ton miles which is the length freight travels). It’s a $60 Billion industry with over 140,000 miles of track. It is dominated by seven major carriers (referred to as Class I Railways). Six of these carriers are publicly traded. The seventh is owned by Berkshire Hathaway. A recent announcement by Canadian Pacific Railroad<\/span><\/strong><\/a> to merge with Kansas City Southern will consolidate this railways pool to five potential investments in the third quarter of this calendar year 2021.<\/span><\/p>\n

The key to success with this pool is determining intrinsic value. This is one of the few times that the discounted cash flows method is warranted in the intrinsic value formula. Once calculated, given the high stability of earnings, the intrinsic value is adjusted annually about four to five percent higher depending on financial and actual performance in accordance with each railroad’s key performance indicators.<\/span><\/p>\n

The following articles articulate this railways pool of investments and provide all the decision model justifications, formulas, changes and reasoning for the respective buy\/sell model. You must be a member of the Value Investment Club<\/span><\/strong><\/a> in order to access the respective articles and the buy\/sell model. Click here to join: Membership.<\/span><\/strong><\/a><\/span><\/p>\n

Currently, late April of 2021, all the railroad stocks are performing at new historical highs. This has been the case now for almost five months. Historical analysis of railway stocks identifies that they are highly correlated with the overall economy which makes sense given their strong relationship to movement of freight. Thus, in order to have an opportunity to buy, the major indices must have retrenchment of some significant percentage, typically more that 15%. This is when opportunities to buy will come to fruition. Until then, a value investor can only wait.<\/span><\/p>\n

The following graph illustrates the performance of the railways pool during the first year. In effect, this pool outperformed the market by a factor of 3.5. Furthermore, it was able to achieve this with only FIVE full cycle transactions<\/span>.<\/span><\/p>\n

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