Winning at Active Management

Chapter 11 High-Speed Technology

We begin our discussion of investment and information technology with a personal story from Bill Priest. As a junior analyst in the late 1960s, my first assignment was to take a look at the railroad industry. Interesting things were happening: an industry consolidation of rail lines was underway, and a recent ruling allowing “fireman off” pointed to significant savings in labor costs. In the days of coal-powered steam locomotives, the fireman was an essential part of a train’s crew, tending to the engine. When rail technology switched to diesel locomotives, however, many of the fireman’s duties disappeared, but union rules required that the position be maintained, and the fireman was often an engineer in training. Ultimately, the position was eliminated—hence “fireman off”—reducing the team needed to run a train.

The most important part of the project was to understand what drove the demand for rail services—the linkages between economic activity and the revenues generated by the railroads. As a regulated business, the railroads published a plethora of data about themselves: the history of demand as measured by ton-miles (a unit of measure expressing one ton of goods carried one mile), as well as statistics on employment, labor costs, debt costs, capital consumption allowances, and other data that was seemingly useless. It was overwhelming.

One readily available clue to estimating ton-miles was a statistic called rail car loadings, but I judged ...