Bill Gates is undoubtedly the richest man in the world. Warren Buffett is the third richest person in the world. But as Thomas Black and Frederick Tomesco of Bloomberg report, even though these polarizing figures are inclined to philanthropy, when it comes to investing in the realm of old-school North American railroads, Buffett and Gates are on different sides of the fence.
Black and Tomesco write:
“Canadian National Railway Co. (CNR) is beating benchmark stock indexes as profits and shipments surge, a boost for Gates, the largest shareholder….
BNSF Railway Co., owned by Buffett’s Berkshire Hathaway Inc. (BRK/B), is struggling. North America’s biggest railroad by sales is grappling with slow traffic and is being scrutinized by U.S. regulators for poor service, spurring concern that it risks a permanent loss of some customers.”
Buffett owning a railroad is perfectly logical on the surface. His overall investment philosophy is all about putting money into businesses that he understands – in terms of products, operations and opportunities.
Warren Buffett purchased Burlington Northern Santa Fe railroad as the recovery in the US economy was beginning to pick up steam. Buffett recognized the railroad as a way to play the US recovery at its core: a resurgent demand of goods means that the goods would have to be moved in larger numbers from one place to another.
On the other hand, Bill Gates as a railroad tycoon does not necessarily seem to fit his character. It is surprising that the computer genius would want to own a large chunk of the business operating on mid-20th century technology. Maybe Gates and his team wondered “What Would Warren Buffett do?”
In the case of Bill Gates, his purchasing a railroad stake could be looked upon as a simple investment – even though it’s a timely one – but nothing more than that. Gates is not running CNR.
But in the case of Warren Buffett, since Berkshire Hathaway owns Burlington Northern Santa Fe railroad, it is effectively running the company. He is also responsible for the promotion of the railroad’s story, which has been very uplifting and compelling since he took over – the tale of the American comeback story that could certainly excite the little kid in everyone.
Everybody loves trains! Everybody loves the thrill of watching the locomotive come roaring down the track.
But Buffett has himself a problem. BNSF suffered from a harsh winter, and in August Reuters reported that the railroad is entering a rebuilding phase. Berkshire Hathaway is certainly not backing down though. In order to improve railroad operations, Buffett plans to sink $5 billion into Burlington Northern Santa Fe.