Today is November 15, 2019 and Canadian Pacific Railroad recovered in accordance with my railroad fund investment model to $241.47 per share. The value investing model automatically sold at $241.47 and the price per share continued to climb to $241.86 when the market closed at 4 PM.
This railroad fund investment model is purely a concept with no actual dollars invested in railway stocks. The model was designed using the business ratios and the tools to evaluate business ratios to select proper buy and sell triggers for railroad stocks. Both the industry makeup and the controls allow the model to utilize the parameters set. This is approximately the seventh post about this model which creates the model’s operational points and allocations. For further clarification read:
- Value Investing with Business Ratios – my book that will go on sale at year end 2019; it explains how business ratios are used to build a buy/sell model and develop triggers.
- Railroad Stock Investments – The Standard of Measurement to Buy and Sell Railway Stock
- Railroad Stock – Discovering Opportunities
- Railroad Companies – A Solid and Steady Investment
The above articles introduce the reader to this value investing concept and provides an example of how to build the model. Please remember, this is purely a one year test to prove the model’s validity and the final change in value. I do not have any actual cash invested in railroad stocks and issue caution to novice investors, please do not get involved unless you have a sophisticated understanding of stocks. This system is designed to illustrate how to build and work the model correctly.
If you have read the prior posts related to the Railroad Fund you will note that I start out with $10,000 as my initial investment. My model started on 10/21/19 and today is 11/15/19; it’s 26 days later, for the sake of argument, 27 days total. During this time period, I would select certain railroad stocks and invest $2,500 in that particular stock. So far, I have bought 3 stocks. One of those stocks was Canadian Pacific which the model sold today upon reaching the sell trigger point. Basically the model looks for a peak price, which back on September 2nd 2019 was $241.47. The model I built using various inputs, cycles and relies on business ratios to trigger a buy once the stock decreased in value by at least 10% from a peak. Based on the historical pattern, Canadian Pacific would recover within three to four months. In this case, it recovered much faster than anticipated. Nonetheless, it did recover in accordance to the model.
The key to my concept dealing with value investing, is patience. Now the model tells me to wait patiently for Canadian Pacific Railroad to decrease by 10% from a peak point. This could happen quickly or it may take months, even up to a year before this happens. It doesn’t matter, the key is to be patient. There are five other railroads in the market for me to work with. I’ve built a buy sell model for each and I continue to wait.
Here are my results for Canadian Pacific:
Bought 11.36415 shares at a cost of $218.99 each (this is 9.3096% less than the peak, my start date missed the 10% decrease point which was a few days before the portfolio started, thus I bought them anyway in order to get the model started). I estimated cost per share at $1 each.
Buy 11.36415 shares of Canadian Pacific $2,488.64
Cost of Purchase 11.36
Total Cost $2,500.00
Sold 11.36415 shares on 11/15/19 @$241.47/ea 2,744.10
Cost to Sell (11.36)
Net Proceeds $2,732.74
Gain on Sale $232.74
Return on Investment 9.31%
Annualized = > 100%, remember the above return was over 27 days.
Fund as a Whole: Market Value of Fund:
Beginning Balance $10,000.00 Stock Holdings at Current Trading Price 11/15/19 $5,028.34
Net Gains to Date 232.74 NS @$191.07, 13.52375 Shares = $2,583.98
Dividends Earned to Date 12.71 CSX @$71.61, 34.13435 Shares = $2,444.36
Fund Basis 11/15/19 Cash Balance $5,232.74
. Dividends Receivable (NS) 12.71
. Total Market Value of Fund
The difference between the fund basis and the market value are the unrealized gains, i.e. the amounts I would earn if I sold the other two holdings in this portfolio.
The railroad fund is performing well, in excess of 40% annualized return on my investment for the first month; however, I do have some concerns. First off, right now I have $5,232.74 not working for the fund at all. Cash sitting in bank account isn’t making the fund money. The other part is that none of the other railway investments have met any of my triggers to buy and only one looks like a viable option but is still not close to the buy trigger point. Norfolk Southern is doing well, but still has a long way to go. Thus the problem with patience is that it sometimes isn’t making you money. What do I do in the interim? That’s for another post.
For now, the portfolio is performing well and is following the model constructed. Patience is the key. It was a good day today selling Canadian Pacific. 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.