Profit From High Oil Prices Like A Billionaire
Ever wonder how billionaires make their money? Some inherit it – like the Walton children who became billionaires after the founder of Wal-Mart died. Some billionaires like South American drug-lords make their money illegally. Yet others found and build very successful companies, folks like Michael Dell and Bill Gates. But one type of billionaire – the thinker – makes his money differently. He sees the world in a unique way that makes him very rich.
These billionaires look at a problem and instead of finding one or two ways to solve it, they find hundreds of solutions. They’re successful at investing because they think differently from you and I. They identify a change in the economy and find unique ways to profit from it. One of these investors is Warren Buffett who I’ve mentioned numerous times in my articles. Another is Carl Icahn, best known for his hostile takeover of TWA airlines in the 1980s.
Both of these billionaires enrich themselves by thinking differently.
Let me give you a perfect example. A few months back the newspapers were abuzz when Warren Buffet announced purchases of Burlington Northern (BNI), Norfolk Southern (NSC), and Union Pacific (UNP) shares. The railroads hadn’t seen excitement like this since the transcontinental lines were completed in 1869.
Seriously, why was Warren Buffet buying railroads? Historically they were huge consumers of capital, and profits were fickle. Not exactly the type of investment he prefers.
Then news about Carl Icahn arrived. He took a major stake in Greenbrier (GBX), just under 10%. For those of you who don’t know, Greenbrier is one of the largest manufacturers of railcars in the United States. Apparently the railroad industry, the same one that made Cornelius Vanderbilt his fortune in the late 1860s, is back in vogue!
But why railroads?
Some investors mentioned railroads as a turnaround investment. Others mentioned China and the need to ship goods all over the US. True, but that trade has been going on for years. Then it hit me – OIL! That’s right, these billionaires are not investing in railroads as a turnaround, or trade with China, though those reasons don’t hurt.
They’re investing in the railroads as a way to profit from high oil prices.
With oil prices closing over $100 the strategy makes even more sense. Bear with me a moment as I explain.
Everyone knows oil prices are at all time highs. As a result, transportation fuels like jet fuel and diesel, which are made from oil, are near record prices as well. Many investors looked at this predicament and rushed out to invest in alternative fuels (but not Buffett and Icahn). Ethanol and biodiesel became the investment “de jour”. Now serious investors realize that these industries will take years to reach full production and profitability (if ever).
The billionaire thinkers found a different way.
They looked at the major consumers of transportation fuels. One of the biggest is long haul trucking. Long-haul trucks are used to transport the majority of finished goods throughout the United States. As fuel prices increased, so did the costs of transporting goods. Anyone who needed to ship anything started looking for alternatives and they found it . . . in the railroads.
When comparing long haul trucking to railroads, railroads win hands down. When you ship a load via rail it consumes 1/3 the fuel, according to the Wall Street Journal. Essentially, Buffet and Icahn are making a bet on continued high oil prices. With long haul trucking prices increasing the only viable solution is shipping via railroad.
I’m sure this one idea will make them hundreds of millions in profits. If you want to invest like these billionaires, start thinking differently . . . and maybe pick up some shares of these railroad companies while you still have a chance.
Category: Commodities
