In my prior article in this series, I mentioned an existing problem and that was the lack of volatility in the market. Today, I got what I wanted. Let me first update you on the fund’s status prior to today and then what happened today to create a new twist in my value based investing venture with this railroad fund.
Prior to 20th of February 2020, I held 103.607743 shares of CSX with a sell point of $80.52, its prior high back in the summer of 2019. On 02/20/2020 at 10:45 AM it suddenly peak to $80.59 which automatically triggered a sell. With the cost of $1 per share, I netted $746.14 from this transaction. The account balance is now $11,304.65, all of it in the form of cash.
In my last article, I talked about having an alternative fund of similar stocks to compare and laterally transfer when the entire pool of existing stocks in the railroad fund are at or near their lifetime highs; or recent highs. I mentioned that without some volatility I’m going to have trouble with a limited fund of only 6 options (only 6 railroad companies meet the parameters of this fund, the most important of the criteria being a Class I railroad). Well, I got it this morning when the market dropped a 1,000 points due to the coronavirus scare. Guess what? I got lucky and one of the railroads completed an 8% differential from a prior peak.
Norfolk Southern peaked at $219.88 on January 29, 2020. My trigger to buy Norfolk Southern is an 8% drop, i.e. it has to drop to $202.29 (92% of $219.88) which it did this morning when the exchanged opened. At 9:33 AM it dropped to $202.49 and by 9:43 dropped to $200.76. Thus, at some point during those 10 minutes my buy order would have been fulfilled by the computer order and I bought 12.297702 shares of Norfolk Southern. The low point in the day was at 1:17 PM at $200.51. This afternoon I happened to look at what was going on the market due to the news and I saw a nice decline among all six railroads. At this point, I researched all six railroads and discovered Norfolk Southern met my criteria to purchase. Remember, a value investor uses a computer generated set of orders for buy/sell points; thus the order was already filled, I just didn’t know it at that moment.
Union Pacific had a nice drop since its high of $187.19 on 1/23/2020; but my requirement for Union Pacific is a 17% drop in price. It’s tempting with a 5.5% drop right now as I’m sure it will recover given the quality of Union Pacific; but value investing is about setting limits/triggers and exercising them. Thus, I bought $2,500 worth of Norfolk Southern this morning and now it is the end of the day. Norfolk Southern has recovered to $203.01. Thus, I’m going to go ahead and buy 3 more sets of stocks at this price tying up $10,000. There are no other good options and even at this price, it is slightly outside of my criteria for this $7,500 investment; but I need to put the money to work. If one of the other five has a more significant dip over the next 30 days, I’ll sell one set ($2,500) and purchase the alternative to diversify the portfolio. For now; I don’t think it is as big a deal.
Thus, for today:
02/24/2020 @ 9:33 AM $2,500 set buys 12.297702 shares of stock (includes a $1 per share transaction cost).
02/24/2020 @ 4:00 PM (just a moment before market closes) $7,500 buys 36.762903 shares of stock including the $1/share transaction cost ($204.01 per share with $7,500 = 36.762903 shares).
I don’t expect dividends because the prior Ex-Dividend date is 02/06/2020. For now, I’m satisfied I have money invested in railroad stock so my cash isn’t sitting around doing nothing. I got lucky that it only sat for four days.
Right now, I have 49.060606 shares of Norfolk Southern with a basis of $10,000 and $1,304.65 of cash in the bank.
For those of you wondering why I didn’t buy Union Pacific since it has such high quality (probably the best of the entire six railroad stocks) please read my article: Union Pacific – Buy/Sell Model.
To all readers: Please remember this is a series of articles about a NON ACTIVE PORTFOLIO OF RAILROAD STOCKS I am experimenting with for the purpose of explaining and validating my Value Investing Concept/Formula tied to my first book about this: Value Investing with Business Ratios. I do not have real dollars in this, although now I’m wishing I did due to its performance. Anyway, my write-ups are purely speculative and I am not advocating for anyone to follow my pattern. Investing is risky and you should be well read and sophisticated to invest in stocks. Follow my mantra: 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.