Warren Buffett and Cathie Wood are polar opposites when it comes to their investment styles.
One sector that the two investors cannot agree on is the railways, with Ark naming the sector on its “bad ideas” list.
“I will risk a rare prediction: BNSF [Railway] it will be a key asset for Berkshire and our country in a century, ”Buffett said in his annual letter to shareholders.
It should come as no surprise that Berkshire Hathaway’s Warren Buffett and Ark Invest’s Cathie Wood are polar opposites when it comes to investment styles.
Buffett has a history of successful value-based investing, judging a company by its current fundamentals and profit margins rather than looking far into the future for great growth. Meanwhile, Wood has found great success by focusing his investments on disruptive innovation – companies that focus on growth at the expense of profits.
This dynamic between the two was in full light last week after Berkshire Hathaway released its annual letter to shareholders, advertising an industry in which Wood sees no future: railways.
Buffett called his company’s ownership of the Burlington North Santa Fe Railway one of his “four giants” that has a promising future ahead of it despite being an old-fashioned business that can trace its roots back to 1848.
“BNSF continues to be the number one artery of American trade, making it an indispensable resource for America as well as for Berkshire. If the many essential products BNSF transports were instead transported by truck, the carbon emissions of the ‘America would rise,’ Buffett said in his annual letter.
BNSF Railway, which is America’s largest railway by revenue, posted record earnings of $ 6 billion in 2021. And Buffett expects that record to be continually broken for many years into the future.
“I will venture into a rare prediction: BNSF will be a key asset for Berkshire and our country in a century,” Buffett said.
But Wood’s Ark Invest sees the rail business differently. Ark in his report on bad ideas called it a “bad idea” that investors should avoid as it is ripe for disruption.
That disruption, according to Wood, will be driven by the adoption of autonomous electric trucks that “will compete cost-effectively with freight rail and offer better and more cost-effective service.”
According to the report, the potential affordability and cost-effectiveness of self-driving electric trucks should help reverse the market share gains and pricing that electric rail companies have earned from truckers since the early 2000s. leading to the potential destruction of $ 400 billion worth of fixed assets.
“The combination of electric and autonomous technology will increase productivity and dramatically reduce trucking costs,” the report said. Wood expects autonomous trailers to reduce the cost of trucking by 75% to 3 cents per tonne-mile, “undercutting rail prices with the help of reduced electricity and maintenance.”
Combined with the potential for autonomous vehicles to take on different form factors over time such as drones and moving walk robots, “we believe freight rail companies will find it difficult to compete with antiquated technology linked to dedicated infrastructure resources,” the report said. .
“ARK wonders which freight rail operators will survive.”
According to the report, Wood expects the switch from railroad to autonomous trucks to occur within the next four to nine years.
But that timeline may not be complete, as Tesla’s electric semi-trailer, which was revealed in 2017 with a scheduled launch in 2020, has been delayed until 2023 at the latest.
For now, investors appear to be siding with Buffett versus Wood based on Berkshire Hathaway’s performance versus Ark’s flagship fund in recent years.
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