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I am quick to point out what I consider the inherent inequities in a financial system that gives investment houses like Goldman Sachs (NYSE: GS  ) the ability to rake in gains through the superhuman speed of stock-trading supercomputers. However, I am happy to suggest that on occasion, we lowly retail investors might actually hold a strategic advantage over even billionaire icons like Warren Buffett.

More on that point in a moment. First, let's absorb what is likely the final earnings report from railroad operator Burlington Northern Santa Fe (NYSE: BNI  ) as an independent company. The railroad's adjusted earnings deteriorated by 27% from a year-ago fourth quarter in which fuel surcharges cushioned the early stages of freight volume declines. Revenue slumped nearly 16% to $3.68 billion. Western U.S. rival Union Pacific (NYSE: UNP  ) posted similar results, with a full-year revenue drop of 21% that closely mirrored results from Eastern U.S. counterpart CSX (NYSE: CSX  ) .

I will not for a moment question the wisdom behind Buffett's move to bring Burlington Northern into Berkshire Hathaway's (NYSE: BRK-B  ) fold.  I'm sure that over the very long haul, the investment will prove extremely profitable. What's more, I consider an "all-in wager on the economic future of the United States" a profoundly patriotic act at a time when people remain concerned about what the future may hold.

But as the Burlington deal makes clear, buying shares can be a whole lot cheaper than buying companies. Berkshire's bid for Burlington placed a 30% premium over the pre-bid share price of the railroad, and the boldly bullish move lit a candle under the shares of competitors that is only just now beginning to flicker. We'll call this the Buffett effect, and as the effect wears off, I think Fools will have a chance to outperform the value master.

One year ago, I encouraged Fools to remain patient for a more favorable entry price than Warren Buffet had achieved with earlier share purchases. Soon afterward, Burlington shares proceeded to decline more than 20% before striking bottom near $50 per share. Of course, assuming the deal wins approval as anticipated, Burlington shares will stay put from here forward. However, the remainder of the sector remains subject to the whims and vagaries of a nervous equity market, not to mention a railroad industry still plagued by troubling freight metrics (including CSX's 23% decline in fourth-quarter coal volumes).

Burlington's revenue fell across every freight category in the fourth quarter, and overall volumes dropped 12.3% from the prior-year period. Every major railroad operator has shown remarkable profitability in the face of these daunting economic conditions. But as persistent sluggishness in freight demand erodes the Buffett effect into a potential dip in the sector's share prices, I believe that Fools may be able to make their own wager on eventual U.S. recovery ... at a significant discount to the price that Buffett paid. I have been particularly impressed by the performance of Canadian National Railway (NYSE: CNI  ) and Norfolk Southern (NYSE: NSC  ) , but frankly, these are all quality names that bear watching.

More than 2,000 Motley Fool CAPS members, including 575 All-Stars, expect five-star pick BNI to outperform the S&P 500. In all, the CAPS community has shared its collective insight on 35 "road and rail" companies. Join the free CAPS community today and share your views on how the rail industry will fare throughout these persistent economic headwinds.

Berkshire Hathaway is a Motley Fool Inside Value recommendation. Berkshire and Canadian National Railway are Motley Fool Stock Advisor selections. The Fool owns shares of Berkshire. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Christopher Barker has never hopped a freight train, but he thinks it would be a fun place to learn the harmonica. He can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He also tweets. He owns no shares in the companies mentioned. Try any of our Foolish newsletter services free for 30 days. The Fool's disclosure policy never plays on the tracks.

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Related Tickers

2/12/2010 4:01 PM
BNI.DL $100.21 Down +0.00 +0.00%
Burlington Norther… CAPS Rating: *****
BRK-B $144.49 Down -0.37 -0.26%
Berkshire Hathaway… CAPS Rating: *****
CNI $65.67 Down -1.12 -1.68%
Canadian National… CAPS Rating: *****
CSX $30.34 Down -0.73 -2.35%
CSX CAPS Rating: *****
GS $174.51 Down +0.00 +0.00%
Goldman Sachs CAPS Rating: ***
NSC $93.13 Down -2.51 -2.62%
Norfolk Southern CAPS Rating: *****
UNP $90.64 Down -6.48 -6.67%
Union Pacific CAPS Rating: *****