Why You Shouldn’t Follow Buffett

There is a big hoopla around Buffett’s most recent investment in North America's largest rail company (by market capitalization): Burlington Northern Santa Fe (BNI, news, msgs). Suddenly railway companies become big stars around world. Any company related to railway got a rise on its price, even for the one not owning a single section of railway, on the Shanghai stock exchange. Well, a good investment for Buffett may not be a good investment for everyone. There are 2 reasons.

1. A rail company is hardly a growth company in a developed country like US. BNI might have nice growth in past several years (22% in the past 5 years), but it could not walk out of the place and went into or create new markets. It sits there catering for the demand in the area it covers. Such demand is very unlikely to grow quickly, not at the speed before this recession. The only growth factor is the environmental concern, which makes railway transportation a winner over trucks. But there will not be much room to growth due to this reason, because railway transportation is always cheaper in general. Whoever considering railway is a more economical option than trucks are already using it. The environmental factor may help railway business a bit, but not drastically. The most a railway company can do is to improve their efficiency. In short, it does not create a new economy or market, but instead, follows general economy.
2. Buffett has a large pool of money to invest. With the prospects of devaluation of US dollars in foreseeable future, BNI is a big enough and safe enough asset to invest.

So if your capital pool is not as big as Buffett’s and you want growth, a rail company in a developed country is not an exciting opportunity.