Why Bill Gates And Warren Buffett Are Railroad Rivals

Bill Gates is the richest person in the world. Warren Buffett is number three.

But as Bloomberg's Frederic Tomesco and Thomas Black report, even though both billionaires are philanthropically entwined, when it comes to the old-school realm of investing in North America's railroads, Gates and Buffett part ways.

Tomesco and Black 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.

It seems perfectly logical for Buffett to own a railroad company. His much-lauded investment philosophy hinges on putting money only into businesses he can understand - in terms of operations, products, and, crucially, opportunites.

The Oracle of Omaha bought BNSF as the U.S. economic recovery was picking up steam. Buffett saw the railway as an idea way to play the bounce-back at a core level: resurgent demand for goods meant that those goods would need to be moved in greater numbers from point A to point B.

For Gates, on the other hand, being a latter-day railway tycoon seems far less in-character. A tech titan owning a big chunk of a business that runs on mid-20th century technology? Well, maybe Gates and his advisors just asked themselves "What Would Warren Do?"

In Gates' case, his railroad stake can be viewed as simply an investment - evidently a timely one - but nothing more than that. Gates isn't running CN.

But Buffett, because Berkshire Hathaway owns BNSF, is effectively running the railroad. He's also responsible for promoting its story, which since he took over the company, has been an uplifting and compelling one - a tale of American comeback, cast in terms that excite the little kid in everyone.

Trains! Who doesn't get a thrill witnessing a long freight train, loaded with America goods bound for American markets and ultimately American customers, rolling through the America landscape?

So Buffett has a bit of a problem here. A harsh winter was unkind to BNSF, and as Reuters reported in August, the railway is in something of a rebuilding phase. That doesn't mean Berkshire Hathaway is backing down, however. Bloomberg and others have noted that Buffett is planning to put $5 billion into BNSF to improve the railroads operations.