Let me make this perfectly clear: Warren Buffett is not Snehal Amin. (Remember him? He’s the hedge fund honcho who tried, and failed, to hijack CSX.) Warren Buffett understands railroads. Warren Buffett likes railroads.
If Warren Buffett can be compared to any railroad tycoon from yesteryear, it would be James J. Hill, the Empire Builder (bottom). Hill built what is today much of the northernmost portion of BNSF’s 27,000-mile system. He is said to have been ambitious but not ruthless, an idealist blessed with an incredible business savvy. He also is said to have possessed a great sense of purpose, a desire to create something with great social as well as economic value. Oh sure, Hill made a bundle pushing the Great Northern westward, bringing the Northern Pacific and Spokane, Portland & Seattle into his railroad portfolio, but who would have denied him his riches?
The modest Mr. Buffett, on those rare occasions when he grants an interview, is refreshingly down to Earth, and knowledgeable about what he chooses to invest in. If anybody actually deserves to own a railroad lock, stock, and barrel, it’s Buffett. If anybody actually deserves to be fabulously rich, it’s Buffett.
Buffett spoke at length about BNSF and the railroad industry with PBS’s Charlie Rose (no relation to Matt), who does not practice MTV-style journalism or scream in your face. Read on:
• “I felt it was an opportunity to buy a business that is going to be around for 100 or 200 years, that’s interwoven with the American economy in a way that if the American economy prospers, the business will prosper. It is the most efficient way of moving goods in the country. It is the most environmentally friendly way of moving goods, and both those things are going to be very important. But the biggest thing is [that] the United States is going to do well. I mean, we can’t move the railroad to China or India.”
• “You spend money in this business regularly every day. You’re spending a lot of money to repair track, add rolling stock, whatever it may be. So . . . it will continue to be capital-intensive and regulated. . . . [I]f we get a reasonable return on the added capital investment—because it will take added capital investment—we’ll do OK. A reasonable return is good. . . . We’re building things that are essential to society, and people need our services. . . . And we should get a decent return on that—enough to encourage us to keep putting money into the business, but we’re not entitled to spectacular returns.”
• “We will wean ourselves off coal over time, [but] we can’t change the 40% of electricity generation that comes from coal next week or next month or next year. There will be more grain to move, and there will be more [freight] of all kinds . . . whatever it may be. There will be more things moving around this country 10 or 20 or 30 years from now.”
This isn’t Wall Street talking. Contributing Editor Larry Kaufman has a lot more to say about that in our cover story.
What may Buffett be thinking about, long-term? Think electric power generation—wind farms—transmission line rights-of-way—railroad rights of way—inexpensive electrification—electric locomotives—improved railroad efficiency and lower costs. Maybe even high speed trains.
Get the picture? It’s not too far-fetched.
By the way, in case you’re wondering why Buffett sold all his shares in Union Pacific and Norfolk Southern: “I’ve done that just to facilitate the [BNSF] transaction. I think they’re good investments, and I would have held them if [the BNSF transaction] hadn’t happened.” And oh yes, he does have a model railway in his attic: “I hope they don’t make me sell it for antitrust reasons.”
Happy Holidays. Prosperity, good health, and an excellent safety record in 2010.