Mr. Buffett Courts Railways

Warren Buffett is up to his old tricks again. This time he is eyeing railroads. Many wonder why would you want to invest in such an antiquated industry. Their is nothing sexy about owning railroads, when you can own the likes of Google, Yahoo, Ebay, and many other high flying tech companies. However, their is something very attractive about owning railroads that Mr. Buffett I am sure is very aware of. It is called high barriers to entry. The odds of you, me, or anybody else creating a start up railway company is Nil. Other factors according the Financial Times,

..."include...solid demand, that has done wonders for pricing, allowing the sector to earn its cost of capital and more for a change. It is far from clear, however, how long that trend can continue. Railroads already carry more than 40 per cent of US freight, well above their post-war trough and a far higher share than in other developed countries Trains are well-suited to carry bulky goods over long distances. At least in the US, that has made them a prime beneficiary of globalisation. They are also more energy-efficient than trucks. That increases their appeal when oil prices are high and should translate into further market share gains once US policymakers get more serious about climate change."

Do we dare doubt the Oracle of Omaha? His history of making contrarian investments pay off in huge returns is unmatched.

For those of you looking to diversify your holdings into other sectors you may want to do some research on this sector. Keep in mind that Mr. Buffett's strategy is long-term. Your real return would probably be produced over a 10-year period, but it may prove to be one huge return.

Yahoo Industry Research - Railroads