US railways are mostly used by freight, not people. But maybe the Sage of Omaha thinks that will change.

So Warren Buffett is betting the farm on the US railroad system. His Berkshire Hathaway vehicle has just spent $27 billion dollars – his biggest single punt ever – on the purchase of Burlington Northern Santa Fe, whose origins date back to 1849.

This came initially as a bit of a surpise to me, because most of the journeys I’ve made by train in the US have been pulled by steam engines on preserved tourist lines. I wouldn’t for one moment want you to get the impression that I’m a borderline autistic spectrum spotter in a cagoule, but, inside a week, I once clanked along at about 10mph on the Durango to Silverton, the Georgetown Loop and the Cumbres and Toltec. All three are in Colorado, where the state boasts a greater head of steam than a Chinese laundry.   

The railway made America. As they pushed out West, the first problems faced by the rail pioneers were hostile Indians who resented iron horses on their hunting grounds. And a few of Kevin Costner's irate native pals were nothing compared to the obstacles the palefaces met when they reached the foothills of the Rockies.  Colorado has 75% of the area over 10,000 feet in the United States, with 53 peaks over 14,000 feet and locomotives cope poorly with slopes.

But the US nation fell out of love with railways in a big way, preferring road and air for both long and short hop travel. But the reason why Warren has made his move is that despite the fact that people don’t by and large use trains in the US – freight does. At 2820 billions of tonne kilometres their freight rail usage is the highest in the world.   

So Warren is gambling on several things. Firstly, that the US economy will recover and those wagons will fill up with Chinese imports again. Second, that  environmental concerns will further favour rail. Thirdly, he dislikes competitor-filled markets. And nobody in their right mind is going to start laying iron track to create a rival railroad. It’s the classic, long-term value investment and has been, yet again, derided as “boring.”

In the meantime our railways in the UK are in a fairly sorry state. Nobody wanted to invest in National Express’s rail franchise, forcing the government has been forced to take it over, while this week we saw the first ever £1,000 fare. To look at how we got left behind in the dash for high speed rail travel, have a read of Simon Caulkin's interesting piece from this month's MT. You'll have noticed that Buffett isn't investing in our rail network.