Railroads

About four years ago, I came across an article indicating that Warren Buffett had began building large positions in Railroad companies. Upon reading that article I embarked upon a journey to rationalize his investment in railroad freight and whether or not rail transportation was viable long term solution, both economically and politically. I strongly believe that as our nation begins to integrate infrastructure, systems, and technology we will continue to see favorable economics in the rail industry.

Since I am particularly fond of railroads, each week for the next couple of months I am going to evaluate the company Burlington Norther Santa Fe on the criteria that I have listed below. Once I compile my analysis I will post my results, nearly verbatim, to this blog.

Industry Outlook
Operations
Management
Financial
Valuation

An industry that was once thought of as boring and non-innovative has emerged as the leader in transportation technology and innovation. It is intriguing to read about how the industry has been resurrected time and time again, each time emerging with new technology and competitive advantages - yet it is in the 21st century, over 150 years later since the industry has actually achieved notoriety and favorable cost economics. Unfortunately, I can not say the same thing for all transportation sectors - particularly the airline industry.

If the airline industry can eventually achieve the same success of the rails then maybe in another 50 years, airlines will be a logical investment option as well. However, if my thesis does seek fruition, then I will concede that Buffett was correct when he stated that if he was at Kitty Hawk he would have shot down Orville Wright - since at least up until 1990 the airline business had yielded absolutely $0 for investors. Good thing they did not derail the railroad infrastructure.

If you want to learn more about the railroad freight business please watch the Modern Marvels special that I have added below: