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Home > Investing, Weekend Investor > Weekend Investor: What’s Old Becomes New Again

Weekend Investor: What’s Old Becomes New Again

October 4th, 2010 Leave a comment Go to comments

Recently, I went to visit one of the Vanderbuilt mansions in New York state. The Hyde Park mansion was built by one of Vanderbuilt’s son’s. The story of how the elder Vanderbuilt built his fortune has lessons for today. One of the major businesses where Vanderbuilt made his fortune was with railroads in the 19th century.

Warren Buffet has made a huge bet on railroads in 2009 by buying the rest of Burlington National railroad. The first thing that came to my mind is: Aren’t railroads a ‘settled’ industry, essentially an old established technology with no future growth? Why would one want to buy in now?

This is where Vanderbuilt comes in. Before he started buying railroads in the late 1800’s, rail was an ‘established’ technology of its time. Many railroads were poorly run, losing money and left for dead.

Vanderbuilt saw opportunity others didn’t. At the time he bought the rails, it was difficult to, say, take a train from New York to Chicago without many transfers. He innovated by consolidating the lines so that a direct routes could be taken  from the major hubs with few or no transfers. This innovation led to huge business and profits.

Warren Buffet has indicated that rail is a business with future profit potential primarily due to the cost effectiveness of it and its energy efficiency, which will be a concern over the long term.

What I take from all of this is that investing is about making money. That doesn’t necessarily mean that making money is from new, exciting technologies, but can be realized from old boring ones as well.

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