Buffett's Big Gamble On America's Future

The Sage of Omaha has made what maybe his smartest, best and boldest investment yet by buying the Burlington Northern Santa Fe railroad.

By buying the BNSF, Warren Buffett has positioned himself to profit from the future of American transportation. With our highways gridlocked and falling apart from lack of maintenance and freight traffic expected to double or triple in coming decades, railroads are going to be the principal means of moving freight over long distance.

Add the fact that the world’s oil supply will shrink as demand increases and the picture looks even better for Buffet’s railroad. After all the Santa Fe can move a ton of goods, 470 miles on a gallon of diesel fuel. No truck can match that fuel mileage and the profit that comes from it.

This means that the Santa Fe and other railroads are in a position to provide a basic service the country needs transportation at a time when the government transportation system, highways; is overburdened and failing. The railroads are going to be moving more freight in the years ahead and doing it more efficiently.

The BNSF acquisition is also a real estate deal of monumental proportions for Buffett. The railroad controls vast amounts of land around the country including a lot of prime real estate.

Here in Denver, the BNSF diesel shops are the biggest piece of undeveloped property in the trendy neighborhood of Lower Downtown. When real estate recovers this land and similar parcels in cities all over the country will be immensely valuable. Adding to the value will be the fact that a lot of this land will be transit accessible because its located on railroad rights of way where light rail and other transit lines are being built.

In California, the BNSF owns a lot of land along the routes of that state’s high speed rail system. Once the bullet trains start running land prices near stations where BNSF has property will skyrocket. If other bullet train systems are built around the country or nationwide Buffett could see profits from those as well.

Another potential profit that a lot of people don’t see is that the railroad rights of way are perfect places for pipelines and fiber optic communications cables. We’re going to need more of those as our society grows and Buffett can profit by selling the rights to run those along his railroad tracks.

Buffett is also betting on continued international trade, one of the BNSF’s biggest businesses these days is hauling consumer goods that land in cargo containers at West Coast ports to markets in the east and Midwest. If trade continues to grow and it probably will so will BNSF’s bottom line.

The best thing about this deal is that Buffett is betting against all the doomsayers who say civilization is about to collapse and America has no future. Buffett is pointing out that the United States and the world have a future and economic growth will continue whether we like it or not. Buffett is positioning himself and the charitable foundations that benefit from his fortune to profit in that future.