In yesterday’s post, I indicated that if Union Pacific’s share price drops to $156.79 that the fund would use its excess cash to purchase shares. Well, today at 10:35 AM it did drop to $156.39. Therefore, I used all remaining cash to purchase 8.268268 shares (includes $1 per share cost to make the purchase). If you read my article: Union Pacific – Buy/Sell Model you would understand that I use a 17% price change requirement to buy. With Union Pacific, this occurs about once every three years and it just did, driven by the market scare with coronavirus.
Month: February 2020
I noticed that Union Pacific (I consider Union Pacific the highest quality stock within the six Class I railways) 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 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 with reducing risk.
Volatility is necessary to create market fluctuations. Market fluctuations create price disparity for either intrinsic value (buy side of the buy low/sell high tenet of value investing) or price recovery, i.e. unsubstantiated high market prices for stock. The COVID scare is causing the stock market to suddenly drop across the board for all stocks. This provides opportunities to buy low and simply wait for market recovery to sell.
Every one of the six railroad stocks are at or above their all-time highs. As of today, February 15, 2020, the various stock prices are as follows: Union Pacific 184.65; Norfolk Southern $206.85; Canadian National $93.93;
Kansas City Southern $173.64; Canadian Pacific $270.86; CSX $79.59.
In addition, the price to book ratios are also higher than last quarter. The key question: is there any value in any of the stocks? To do this, a table of various preferred ratios must be prepared and explained in a write-up.
Two critical points of information are evaluated, both the gross profit margin and operational cash flow per share are explained in this article.
During the last 30 days, the fund held 13.52375 shares (original investment of $2,500) and sold them on 01/17/2020 at 9:40 AM when the price in the market hit the target under the value investment principle at $207.17. The value investing principle (simply stated) required the share price to hit the prior peak price which was $206.46. However, on that morning, the share price instantly jumped past $206.46 to $207.17 triggering the sale of the stock. The gain on the sale net of costs of $1.00 per share to buy and $1.00 per share to sell was $288.19. The stock was purchased on 10/23/19 at $183.86.
A tool used by a developer, contractor or homeowner to keep the primary party committed to getting the project completed is called ‘retainage’. In effect, retainage means to withhold a small percentage of all payments made until all the work is done. The idea is prevent the contractor, subcontractor or vendor from earning their respective profit until they have completed their agreed upon service.