It should be no surprise that Warren Buffet and Cathie Wood are polar opposites when it comes to their investment styles.
Value-based investing has been successful because of the company's current fundamentals and profit margins rather than its future growth potential. Wood has found great success by focusing her investments in companies that are laser focused on growth at the expense of profits.
The dynamic between the two was on full display last week after the annual letter to shareholders from the company, which promoted the sector that Wood sees as no future in: railroads.
The Burlington North Santa Fe Railway is an old-economy business that can trace its roots back to the 19th century, but that doesn't mean it's out of the woods.
BNSF is an indispensable asset for America as well as for Berkshire because it is the number one conduit of American commerce. In his annual letter, billionaire investor Warren Buffet said that if the many essential products BNSF carries were instead hauled by truck, America's carbon emissions would soar.
BNSF Railway, which is the largest railroad in America by revenue, reported a record earnings of $6 billion in 2011. It is expected that the record will be continually broken for many years into the future.
I will make a rare prediction: BNSF will be a key asset for the company in the century to come.
Wood sees the railroad business differently. It is a bad idea that investors should avoid as it is ripe for disruption.
That disruption will be driven by the adoption of electric trucks that will compete cost-effectively with freight rail and offer better, more convenient service.
According to the report, the potential convenience and cost effectiveness of electric driving trucks should help reverse the market share gains and pricing power railroad companies have gained from truckers since the early 2000s, leading to the potential value destruction of $400 billion in fixed assets.
The combination of electric and self-driving technology will increase productivity and lower the costs of trucking, according to the report. Wood believes that the cost of trucking will be reduced by 75% to 3 cents per ton-mile with the help of lower electricity and maintenance.
The report said that freight rail companies will have trouble competing with antiquated technology tied to dedicated infrastructure assets because of the potential for different form factors over time.
Ark wonders which freight rail operators will survive.
According to the report, Wood expects the transition from rail to trucks to happen within the next four to nine years.
The electric semi-truck that was supposed to be released in 2020 has been delayed until at least 2023.
Based on the performance of the flagship fund over the past few years, investors seem to be siding with Buffet over Wood.
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