Railroad Fund

The railroad fund is a pool of similar investments comprising the six publicly traded Class I railways in the United States. This pool is one of several pools of stocks for the Investment Fund within the value investing section of this website.

Value Investing – Industry Standards (Lesson 13)

Industry Standards

Have you ever wondered how the measurement of length called a ‘meter’ came to be? It is simply the distance light travels in a given time period. The key isn’t the actual definition, it is whom dictates this time period of travel. Some authority states that this is the definition of a meter (also written as ‘metre’). It is currently the International Committee for Weights and Measures based out of France. It is an 18 person task group promoting uniformity with units of measurement. This committee is the authority.

This same principle of authority exists in business. Every industry has their own authority or set of principles promulgated by an agreed upon group of individuals or a leader within that group. For value investors, understanding the authority for the respective industries is essential to measuring success for each member company within the pool of potential investments. Once a value investor recognizes what is the standard of production or performance, it becomes easy to compare their respective investments and then equate this into financial value. There is a hierarchy of authority for all industries. In almost all cases, the number one authority is a governmental institution or law. Other levels of authority at the next level include academia, associations, journals, books, white papers and committees. The third level of authority include experts and company level affiliations. The final level of authority is the leader in the respective industry.

Each of the following sections explore these different levels of authority. In each section, there is an introduction to the various resources the value investor may wish to use when investigating their respective industry. The key to this lesson is to understand that higher levels of authority are the standard setters. Value investing is about having facts to support a buy/sell position with each member of the pool of investments. The stronger the authoritative position of the standard setter, the more accurate the buy/sell trigger points can be calculated.

Sold 49.060606 Shares of Norfolk Southern Railroad for a 14.97% Annual Gain

Norfolk Southern Railroad

On 09/14/2020, Norfolk Southern Railroad’s price hit $220.13 at opening. I set my sell point via an automatic sell at $219.88 and thus the shares automatically sold at $220.13. After paying a $1 per share fee, the railroad fund that I write about on this site generated $10,750.65. My cost basis in them was exactly $10,000 from two different transactions back on 02/23/2020. On that day, the market crashed due to the COVID scare and the lack of action by our Federal Government. This means, I held the shares for 205 days. During this time, the share had dividend payments of $92.34. Thus, my total earnings over 205 days equaled $842.99.

The daily earnings equals $4.11 or if annualized equals $1,496.82. This means my annual return was 14.97% after fees.

Railroad Fund Balance 06/30/2020

Railways Pool

49.060606 Shares of Norfolk Southern Corporation – Closes at $175.82/Share  FMV =  $8,625.84 (Avg Buy Price/Share = $203.83 for Basis of $10,000.00)
Cash Position including recent dividend payment from NSC                                        =  $1,555.16
Total Fund Balance                                                                                                         = $10,181.00
FMV Gain as a % Since Inception:                                                                                 =       1.81%

56.67% Return on Investment: Union Pacific Railroad

PUTs

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 Railroad’s prior peak (high selling price) was $188.96.