56.67% Return on Investment: 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 principle 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’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, 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 fund has no real cash invested. Therefore, I actually DO NOT own any railroad stock. 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. The only form of payment I get is maybe the .4 cents for those ads on the right hand side over there.
Act on Knowledge.
Do you want to learn how to get returns like this?
Then learn about Value Investing. Value investing in the simplest of terms means to buy low and sell high. Value investing is defined as a systematic process of buying high quality stock at an undervalued market price quantified by intrinsic value and justified via financial analysis; then selling the stock in a timely manner upon market price recovery.
There are four key principles used with value investing. Each is required. They are:
- Risk Reduction – Buy only high quality stocks;
- Intrinsic Value – The underlying assets and operations are of good quality and performance;
- Financial Analysis – Use core financial information, business ratios and key performance indicators to create a high level of confidence that recovery is just a matter of time;
- Patience – Allow time to work for the investor.
If you are interested in learning more, go to the Membership Program page under Value Investing section in the header above.
Join the value investing club and learn about value investing and how you can easily acquire similar results with your investment fund. Upon joining, you’ll receive the book Value Investing with Business Ratios, a reference guide used with all the decision models you build. Each member goes through three distinct phases:
- Education – Introduction to value investing along with terminology used are explained. Key principles of value investing are covered via a series of lessons and tutorials.
- Development – Members are taught how pools of investments are developed by first learning about financial metrics and how to read financial statements. The member then uses existing models to grasp the core understanding of developing buy/sell triggers for high quality stocks.
- Sophistication – Most members reach this phase of understanding after about six months. Many members create their own pools of investments and share with others their knowledge. Members are introduced to more sophisticated types of investments and how to use them to reduce risk and improve, via leverage, overall returns for their value investment pools.
Each week, you receive an e-mail with a full update on the pools. Follow along as the Investment Fund grows. Start investing with confidence from what you learn. Create your own fund and over time, accumulate wealth. Joining entitles you to the following:
- Lessons about value investing and the principles involved;
- Free webinars from the author following up the lessons;
- Charts, graphs, tutorials, templates and resources to use when you create your own pool;
- Access to existing pools and their respective data models along with buy/sell triggers;
- Follow along with the investment fund and its weekly updates;
- White papers addressing financial principles and proper interpretation methods; AND
- Some simple good advice.