Railroads

[dealraker]

As some of you may have read or enjoyed, old dealraker has done a serious dance as to grievance regarding particularly Norfolk Souther's business model of:

 

Cut employees

Cut employees benefits

Cut lines

End capital expenditures (exaggeration...but close)

Cut expenses (particularly maintenance)

Cut rail yards (I have a former yard, a fairly recent one, empty across the lake from me)

Do creative top management plans

Buy back stock

Buy back stock increasingly as the stock price rises

Slow buying back stock when the price falls

STOP buying back stock when the stock plummets

Borrow large sums of money to fund said buybacks above

Tout (definition: sell in an aggressive manner) the proverbial one variable called "efficiency ratio" to the dumb, stupid, and easily manipulated idiot envy crowd

Watch the above crowd obsessively compete with one another referencing said efficiency ratio in online forums until it causes knowledgable people to laugh while peeing in their pants

 

Then?  Enjoy the BLOW UP.

 

While the entire world obsesses over "beating the market"; hyper referencing one variable ranking metrics like "efficincy ratio"; choosing idiot hero's like Hunter Harrison.....

 

It has been clear for years and years and years that Berkshire's Burlington had the better railroad operating model.  Not slightly better, but hugely superior.  It is just that "I want it all...and I want it now...and if you don't give it to me I'll cry like a baby" stockholders flock to one-variable rankings so they can one-up one another with how idiot-like they can dance.

 

My NSC stock, an 82 plus year family holding, is going to get precisely what it deserves and what its chanting shareholders deserve.  The grievance dance will go from operating ratio envy to lawsuit/collapse/survival obsession.

 

My morning rant while I laugh out loud.  I would have sold NSC years ago if it was in a tax free account and I sell stocks about once every five years.  This "puppy" is a joke, run by jokers.

 

Two cups of coffee...and I express myself.  Those of you who own Berkshire and get frustrated that it doesn't "keep up" at times?  Damn people, be glad you own Berkshire!

 

As usual this is conversation for me and I'm not checking for gramatical or spelling.  Have a good day.  We are off the rails for a 2nd time with NSC.

Edited February 17, 2023 by dealraker

[Spekulatius]

Nothing to see here, carry on.

 

Some of the best and considered most “durable” business are a race to the bottom- trash collection and railroads are examples. The Waste Management trucks look like they come straight from Mad Max movies. Same with some trains that look like the “War Rig” from “Fury Road”.

You can’t argue with the results though, can you?

 

[Whensthepaintdry?]

Any chance Berkshire insured them?

[BiggieCheese]

@dealraker What are your thoughts on Hunter Harrison? 

[Jaygo]

This is the result of financialization of the world. When you have money mind screwballs running major industrial companies this is what you get. Its sad, and should probably have some serious legal / jailtime consequences to the top brass if its ever going to change. 

 

When you allow a consultant to operate with more authority than an engineer the results are financially amazing while the company gets hollowed out, then all you have is a bunch of defunct rusty scrap. I did this with my own company a decade ago, I see it with lots of trucking companies around here,  see the same with Sherwin Williams who have lost a lot of customer goodwill.

 

 

 

 

[Xerxes]

@dealraker

 

The original Canadian National and CP did have a lot of fat in them. I would argue that the work that Hunter Harrison did was needed but ultimately perhaps taken too far by others. 
 

CN was a crown corporation that was privatized in the 1990s. So you could imagine that the journey from crown corporation to a profitable business needed some pushing by none other than Michael Sabia and Hunter and the former BBD chief (whose name escapes me)

 

CP for a longest time owned a string of hotels (the famous Fairmount) and it was run like a royal court. Some of that was taken out pre-Hunter I think. Just to show how unwieldy they were. 
 

 

Edited February 17, 2023 by Xerxes

[Jaygo]

Yeah hunter was likable and cut fat. I can just imagine how many government hogs were at that trough, you see it at conferences all the time where the guys who can’t get fired are staying at the best hotels, the real businessmen are at the embassy suites. 
 

On the other hand lobbying to reduce regulation and running your employees so hard you can’t safely maintain the network is another thing entirely and should not go unpunished. 

[dealraker]

Xerxes exactly.  It became Chainsaw Al Dunlap.  Hunter got up in the morning and began smoking and drinking coffee for the rest of the day.  I think his base thinking was sound but then maybe there was too much stimulation, too much intensity and lack of clear thinking.

 

In the end, given if one of these things doesn't blow up the ship completely, my view is that railroad investors got a bunch of return very fast--- all at the expense of getting no returns for years afterwards.  Given I'm a buy/hold type there's absolutely no gain in the excess HH behavior.  Again his original moves made a lot of sense.  The same at CSX in my view, even with Ward as CEO they still were off base with a lot of their excesses, particularly self-promotion.

 

When you are running trains full of explosive stuff, maybe cancer causing crap, through congested areas I don't think you have any option but to obsess over maintenance.  It is no different than the way Buffett/Jain run insurance with Berkshire, you've got to plug in the inverse thinking of: What is it that we don't want?

 

 

[gfp]

I'm sure Charlie would say something along the lines of "good ideas, carried to wretched excess, become bad ideas..."

[dealraker]

So here in Linwood NC we got a NSC yard some 40 years ago.  For a long time you could go sit in the tower and watch the system work.  It was a simple and logical model to watch  ---  the cars slide off this or that rail then using gravity reposition onto another track into another lineup.

 

But what mostly stood out was the inspections and maintenance going on.  Each car had its own inspection, there wasn't a single one that didn't get this.

 

Now the yard is still there and the 28 or so tracks still get used as in the past.  But there's bacially no one there anywhere to be seen.  Many of the engines/cars sit in the same spots for over a year.  We know this because we kayak over to the yard under an arched trestle right into the middle of the RR yard several times a year.  

Edited February 17, 2023 by dealraker

[dwy000]

1 hour ago, Xerxes said:

@dealraker

 

The original Canadian National and CP did have a lot of fat in them. I would argue that the work that Hunter Harrison did was needed but ultimately perhaps taken too far by others. 
 

CN was a crown corporation that was privatized in the 1990s. So you could imagine that the journey from crown corporation to a profitable business needed some pushing by none other than Michael Sabia and Hunter and the former BBD chief (whose name escapes me)

 

CP for a longest time owned a string of hotels (the famous Fairmount) and it was run like a royal court. Some of that was taken out pre-Hunter I think. Just to show how unwieldy they were. 
 

 

Xerxes - what are these books (can't fully see either one) and are they any good?

[Xerxes]

38 minutes ago, dwy000 said:

Xerxes - what are these books (can't fully see either one) and are they any good?

 

 

Railroader: The Unfiltered Genius and Controversy of Four-Time CEO Hunter Harrison: Green, Howard: 9781989025048: Books - Amazon.ca

The pig that flew: The battle to privatize Canadian National: Bruce, Harry: 9781550546095: Books - Amazon.ca

 

I read the first one, in the same year that came out. I think Buffett also mentioned the book in his AGM couple of years later.

The second is great story about all the effort that went to float CN as a public company. I really enjoyed it.

 

Unrelated to railroads, the author of the first book, Howard Green, also wrote about the story of TD Bank went to expand its business in the United States. It is a great story. Too bad, I read it many years after its publication.

 

Banking On America: How TD Bank Rose to the Top and Took on the U.S.A. eBook : Green, Howard: Amazon.ca: Kindle Store

 

Another book by Howard Green, which a new one, covers the latter years of Bronfmans/Seagram dynasty.

I have not read this one, but do intend to.

 

Distilled: A Memoir of Family, Seagram, Baseball, and Philanthropy eBook : Bronfman, Charles, Green, Howard: Amazon.ca: Kindle Store

[dwy000]

37 minutes ago, Xerxes said:

 

 

Railroader: The Unfiltered Genius and Controversy of Four-Time CEO Hunter Harrison: Green, Howard: 9781989025048: Books - Amazon.ca

The pig that flew: The battle to privatize Canadian National: Bruce, Harry: 9781550546095: Books - Amazon.ca

 

I read the first one, in the same year that came out. I think Buffett also mentioned the book in his AGM couple of years later.

The second is great story about all the effort that went to float CN as a public company. I really enjoyed it.

 

Unrelated to railroads, the author of the first book, Howard Green, also wrote about the story of TD Bank went to expand its business in the United States. It is a great story. Too bad, I read it many years after its publication.

 

Banking On America: How TD Bank Rose to the Top and Took on the U.S.A. eBook : Green, Howard: Amazon.ca: Kindle Store

 

Another book by Howard Green, which a new one, covers the latter years of Bronfmans/Seagram dynasty.

I have not read this one, but do intend to.

 

Distilled: A Memoir of Family, Seagram, Baseball, and Philanthropy eBook : Bronfman, Charles, Green, Howard: Amazon.ca: Kindle Store

Thanks!  Hope those last two come out in print - I'm not a fan of e-reading.  But great recommendations!

[DooDiligence]

6 hours ago, dealraker said:

As some of you may have read or enjoyed, old dealraker has done a serious dance as to grievance regarding particularly Norfolk Souther's business model of:

 

Cut employees

Cut employees benefits

Cut lines

End capital expenditures (exaggeration...but close)

Cut expenses (particularly maintenance)

Cut rail yards (I have a former yard, a fairly recent one, empty across the lake from me)

Do creative top management plans

Buy back stock

Buy back stock increasingly as the stock price rises

Slow buying back stock when the price falls

STOP buying back stock when the stock plummets

Borrow large sums of money to fund said buybacks above

Tout (definition: sell in an aggressive manner) the proverbial one variable called "efficiency ratio" to the dumb, stupid, and easily manipulated idiot envy crowd

Watch the above crowd obsessively compete with one another referencing said efficiency ratio in online forums until it causes knowledgable people to laugh while peeing in their pants

 

Then?  Enjoy the BLOW UP.

 

While the entire world obsesses over "beating the market"; hyper referencing one variable ranking metrics like "efficincy ratio"; choosing idiot hero's like Hunter Harrison.....

 

It has been clear for years and years and years that Berkshire's Burlington had the better railroad operating model.  Not slightly better, but hugely superior.  It is just that "I want it all...and I want it now...and if you don't give it to me I'll cry like a baby" stockholders flock to one-variable rankings so they can one-up one another with how idiot-like they can dance.

 

My NSC stock, an 82 plus year family holding, is going to get precisely what it deserves and what its chanting shareholders deserve.  The grievance dance will go from operating ratio envy to lawsuit/collapse/survival obsession.

 

My morning rant while I laugh out loud.  I would have sold NSC years ago if it was in a tax free account and I sell stocks about once every five years.  This "puppy" is a joke, run by jokers.

 

Two cups of coffee...and I express myself.  Those of you who own Berkshire and get frustrated that it doesn't "keep up" at times?  Damn people, be glad you own Berkshire!

 

As usual this is conversation for me and I'm not checking for gramatical or spelling.  Have a good day.  We are off the rails for a 2nd time with NSC.

 

Dark roast with chickory!

[thepupil]

from my thinkng out loud on twitter / initial checks it seems that Norfolk isn't going to have to pay much for all this. Nevertheless, I still think it should be down over the las tmonth more than 3-5% relative to peers. For both my parents and my account, I shorted NSC in small size equal to 50% of estimated BNSF exposure for parents and 100% for me. We'll see how it works out. I doubt I'll make / lose very much. but downside probably like 15% (8% after tax) and upside is "more". 

[cubsfan]

5 hours ago, Jaygo said:

 

 

When you allow a consultant to operate with more authority than an engineer the results are financially amazing while the company gets hollowed out, then all you have is a bunch of defunct rusty scrap. I did this with my own company a decade ago, I see it with lots of trucking companies around here,  see the same with Sherwin Williams who have lost a lot of customer goodwill.

 

 

 

 

 

Great comment. Reminds me of this Netflix documentary re: Boeing

 

 

 

[dealraker]

2 hours ago, thepupil said:

from my thinkng out loud on twitter / initial checks it seems that Norfolk isn't going to have to pay much for all this. Nevertheless, I still think it should be down over the las tmonth more than 3-5% relative to peers. For both my parents and my account, I shorted NSC in small size equal to 50% of estimated BNSF exposure for parents and 100% for me. We'll see how it works out. I doubt I'll make / lose very much. but downside probably like 15% (8% after tax) and upside is "more". 

I'm onboard with that comment pupil, but not only is there potential for a change in legal prescedent (either political party could press this issue given a sense for potential votes), it is likely just as you state above that the stock price will have periodic plummets from fear.  Or maybe even 2 or 3 years of far lower valuation.

 

And where will the buybacks be?  Nowhere because the company isn't going to buy back stock now.  They never do when the stock falls or when there is extended business fears. 

 

New era railroading.  Do the momentum dance until it explodes...then run and hide.   And you can be sure, at least I think it is certain, that operating ratios are headed higher as is regulation.  

Edited February 17, 2023 by dealraker

[rogermunibond]

FRA has an updated safety dashboard with train accidents data.  This is not an uncommon occurrence, across all the lines  A few years back when the Bakken oil boom was going on there were a number of high profile derailments/fires caused by tankers carrying crude oil.

 

https://railroads.dot.gov/accident-and-incident-reporting/train-accident-reports/train-accidents-overview

[Saluki]

On 2/17/2023 at 11:51 AM, dwy000 said:

Thanks!  Hope those last two come out in print - I'm not a fan of e-reading.  But great recommendations!

 

Just an FYI, the Seagrams Bronfmanns are the branch with the crazy sisters who were in the NXIUM sex cult in NY.  The Brookfield Bronfmanns were the branch of the family that was squeezed out of the liquor business and went into real estate and became Brascan, which became the basis for Brookfield. "The Brass Ring" is a book that has that story and is excellent.  It's out of print but I have a copy sitting in my office somewhere.  If I go in person anytime soon, I'd be happy to mail it to whoever wants it or bring it to the Omaha for the Woodstock for Capitalists meeting. 

[dwy000]

4 hours ago, Saluki said:

 

Just an FYI, the Seagrams Bronfmanns are the branch with the crazy sisters who were in the NXIUM sex cult in NY.  The Brookfield Bronfmanns were the branch of the family that was squeezed out of the liquor business and went into real estate and became Brascan, which became the basis for Brookfield. "The Brass Ring" is a book that has that story and is excellent.  It's out of print but I have a copy sitting in my office somewhere.  If I go in person anytime soon, I'd be happy to mail it to whoever wants it or bring it to the Omaha for the Woodstock for Capitalists meeting. 

Thanks.  I read the Brass Ring a long time ago when, as a jr banking analyst, we supported Cockwell/Eyton at Brascan.  And went to school with a couple of the Bronfman kids (from the liquor side).  It was a good read but a bit aged now. 

[Dalal.Holdings]

On 2/17/2023 at 6:48 AM, dealraker said:

 

 

My NSC stock, an 82 plus year family holding, is going to get precisely what it deserves and what its chanting shareholders deserve.  The grievance dance will go from operating ratio envy to lawsuit/collapse/survival obsession.

 

 

Why not just...sell it

[dealraker]

33 minutes ago, Dalal.Holdings said:

 

Why not just...sell it

I'm 68 and I learned a long, long, long, long time ago not to sell stocks.  If you look in the mirror and don't see Warren Buffet then you aren't Warren Buffett.

 

Check out my Brookfield comments, I've owned that for 4 decades.  Most hold a few stocks, those they complement and promote.  When the promotion and compliments end they sell those stocks and buy new ones.

 

Me?  LOL, not me.

[dwy000]

4 minutes ago, dealraker said:

I'm 68 and I learned a long, long, long, long time ago not to sell stocks.  If you look in the mirror and don't see Warren Buffet then you aren't Warren Buffett.

 

Check out my Brookfield comments, I've owned that for 4 decades.  Most hold a few stocks, those they complement and promote.  When the promotion and compliments end they sell those stocks and buy new ones.

 

Me?  LOL, not me.

Buffett sells stocks.  A lot.  I get being a long term investor but if the business changes, the price gets too high or management changes for the worse, there's no point holding on and risking losses for no reason. 

[dealraker]

2 minutes ago, dwy000 said:

Buffett sells stocks.  A lot.  I get being a long term investor but if the business changes, the price gets too high or management changes for the worse, there's no point holding on and risking losses for no reason. 

Yes but again I'm not Warren Buffett.   I just sold AN, I'd bought it in the financial crisis.  But I didn't sell it for any of the reasons you mention above.  

 

 

[cubsfan]

^^ Guy Spier has that great saying about this: "Hey, I'm not Warren Buffett....but neither are you"