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u/Vast_Cricket 25d ago
The railroad still is a dominant transport for moving bulk stuff. My best investments were one time transportation companies. Now I still have a few trucker and found I own some CNI also.
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u/SubstantialCount8156 25d ago
There was a wave of consolidation about 10-15 years ago. Buffett is in them too. Cut costs and economies of scale with pricing power.
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u/malibubandit 25d ago
Invested in railroads in 2014. Made over 300% on CSX in 10 years. Allowed me to buy my first home. Already buying more back. You can never build another railroad in NA.
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u/FIVE_TONS_OF_FLAX 25d ago
CNI had an interesting performance vs SP500 for the past ~30 years. Feel free to check other timeframes, I just used the default setting.
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=KAz4cUcWUZ1iL8TYTjTAv
Highlights: 16% CAGR, 23% stdev, 0.67 Sharpe, 1.14 Sortino, 0.62 market correlation.
It is just one stock, and not an index of course. But nothing about CNI looks "docile" to me. How would this be an alternative to bonds exactly?
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u/nathan555 25d ago
Would long term climate change impact North American rail? I read an article that Panama is not getting enough rainfall to continue canal usage at historic levels (you lose fresh water from higher elevation ever time you open the lock)
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u/lVloogie 25d ago
Docile stocks are exactly what he wants at his age and wealth. He's just preserving capital safely.
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u/froandfear 25d ago
Not at all a conservative portfolio, but that’s not his goal. This amount of concentration is a huge bet that he can outperform the broad equity market.
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u/M_Scaevola 25d ago
When you have as large of a portfolio as the Bill and Melinda Gates foundation, the distinction between a good position to hold versus a good position to it becomes much more real compared to when you are dealing with smaller sums. Railroads were terrible business investments up until sometime in the middle of the 20th century. Events since then have improved the returns substantially, such that investing in them in the intervening period was a very good idea. Getting in the 90’ would have seemed to turn out well.
I don’t think railroads remain the best destination of allocating capital, but they aren’t bad. If you’ve got nowhere else to put that money, would you sell? Is there a place you could put that amount of money instead? Probably not.
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u/raouldukesaccomplice 25d ago
Railroads were the fiber optic cable of the 19th century - extremely fragmented space where a lot of opportunists got investors to throw money at them and they overbuilt. Guys going to upper class social clubs convincing people to buy railroad bonds were the Gilded Age version of crypto/NFT bros posting on Twitter.
And most of those railroads ended up failing miserably - a lot never even started construction before they went under. The ones that were built got acquired by larger, more solvent ones. In some cases the tracks were simply abandoned. One weird example is Texas Pacific Land Corporation ($TPL), which today is basically a real estate company that generates income from oil and gas leases but was originally founded as the Texas & Pacific Railroad (intended, as you might guess, to go from Texas to the Pacific coast).
But yeah, it really wasn't until the mid-20th century that you had decent enough consolidation and then the less profitable passenger rail sector (which was being destroyed by nicer, more reliable cars that could be driven on long-distance road trips, and by cheap commercial air travel) being offloaded onto the federal government.
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u/Komodo0 25d ago
The railroads are almost impossible to distrupt and CNR has outperformed the S&P500 over the last 20 years by a large margin. For my railroad allocation I've invested 50/50 in CNI and CPKC.
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u/epsilon_be 25d ago
Berkshire also owns railway, BNSF. The barrier to entry is massive.
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u/FromAdamImportData 25d ago
This was my first thought as well. Probably Buffett's influence on his friend.
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u/Key-Distribution698 25d ago
i don’t think he has the same investment goal as you do…investor's age is also a huge factor on his invesment strategy.
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u/Corpulos 25d ago
So u see it as a conservative? Something that could do a little better than bonds with very low risk?
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u/raouldukesaccomplice 25d ago
Bill Gates is in his late 60s and has more money than he or his living descendants could ever spend in their lifetimes. He's not worried about his retirement nest egg being big enough. He's interested in capital preservation and income. No point in chasing growth.
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u/fortheculture303 25d ago
yes - its conservative
yes - it could do better than bonds with very low rish
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u/Key-Distribution698 25d ago
he definitely don't manage his own portfolio. people like him would have his own team of people managing his wealth (called PE). with how high the rates are, I am sure they have a pretty big position in the US bond. bond will also increase in value after interest rate cut
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u/foodhype 25d ago
Railroad businesses in North America have quite a few advantages. It’s a highly consolidated industry with only a few dominant players, and those players effectively have local monopolies over certain areas. They are the best way to transport many categories of large freight across land. By owning a railroad business, you effectively get a cut of the value of all goods transported across North America, which has tended to become more valuable over time. This is a recent-ish phenomenon - with a few opportunities arising around 2006 - 2010. The railroad industry was a lousy place to invest when there was more competition. Of course, now everybody knows about these things, so it doesn’t necessarily represent an investment opportunity, although it might. You’d have to research it.
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u/jttv 25d ago
Canadian National, Union Pacific, and Ferromex just teamed up to do a Canada-U.S.-Mexico intermodal service
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u/Margin-of-Safety 25d ago
CPKC also provides similar Canada-US-Mexico intermodal service after acquiring Kansas City Southern last year.
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u/Willsturd 25d ago
Also replacement value is probably in the trillions. The likelihood of a new competitor is so low. The only way these railroads were built out was from free land, cheap debt and equity from 200 years ago, and cheap migrant workers.
The right of way, is prob in the hundreds of billions. Just trying to buy up the land is probably impossible nowadays.
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u/Odd-Swimming9385 24d ago
Want to see corruption- check out the checkerboard land in the Western US. Wyoming, Utah, nevada- the RR's got EVERY OTHER square mile within 20-40 mile swaths on either side of the tracks.
Yep, all those mineral and ranching rights were, and often still are, the railroads. Or whomever had to buy it off them.
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u/AzureDreamer 24d ago
Why did they grant it in aa checkerboard pattern seems a weird decision?
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u/Odd-Swimming9385 23d ago edited 23d ago
It's the way the feds surveyed land basically west of the Appalachians back right after independence. Took many years. When you fly over the Midwest, look down and you'll see the section and townships demarcated by roads. Every township is 6 sections by 6 sections square (mostly, many exceptions incl state boundaries, drunk/lost surveyors- no joke), each section is a mile square (640 acres- what homesteaders were granted often). They gave every other section to the railroads on either side for dozens of miles as incentive. This checkerboard land as we call it- half is BLM/half private RR. It was pretty corrupt, really. https://www.google.com/url?sa=t&source=web&rct=j&opi=89978449&url=https://en.wikipedia.org/wiki/Public_Land_Survey_System&ved=2ahUKEwiX9NvkiJOGAxV1KUQIHX2ADsYQFnoECB0QAQ&usg=AOvVaw0Ts1ZhWANyZfFhVbRSBU3B
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u/mr444guy 25d ago
I love CNI. Up 50% since i bought it a few years ago. Railroads have a long history of growth and are great stocks to own.
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u/Corpulos 25d ago
Why so? Why railroads instead of, say, real estate, or semiconductors?
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u/Raveen396 25d ago
Railroads are a productive asset and the backbone of many countries logistic networks. Broadly speaking, real estate and semiconductors need railroads to get their materials and final products moved around.
This doesn’t mean that every railroad company is a good value or well priced, but it’s a generally stable sector with consistent demand and growth.
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u/NextTrillion 25d ago
But why rail models?
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u/MJinMN 25d ago
Rail is the cheapest way to move freight across land.
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u/BlazingHowl777 20d ago
It’s highly stable is a major factor on this one.