Warren Buffett and Elon Musk find value in the same kinds of businesses.
Buffett likes toll roads that give him monopoly power and the ability to raise prices easily.
Musk wields huge influence by addressing bottlenecks like EV charging and space transportation.
Warren Buffett and Elon Musk operate at different ends of the risk spectrum, but they're both drawn to similar kinds of businesses: toll roads and bottlenecks.
Taking a toll
Buffett, a world-famous investor and the CEO of Berkshire Hathaway, has dreamed of charging people for access since he was a child.
"All that traffic," he once said to a friend's mother about the endless cars driving past her home, according to "Buffett: The Making of an American Capitalist" by Roger Lowenstein. "What a shame you aren't making money from the people going by."
Buffett also told his friends that owning the only newspaper in a town is like controlling its only bridge, as readers and advertisers have little choice but to pay a toll.
Years later, one of Buffett's companies held a 24% stake in Detroit International Bridge Co., the only public company in the country that owned a toll bridge. He also highlighted toll roads among the specific assets he wanted to buy in his Buffett Partnership letters in the 1950s.
One of Buffett's friends and a former Berkshire director, the late Sandy Gottesman, was once quoted in a newspaper as saying, "Warren likens owning a monopoly or market-dominant newspaper to owning an unregulated toll bridge. You have relative freedom to increase rates when and as much as you want."
"I won't quarrel with that characterization," Buffett responded when he was asked about the quote during a legal battle. "I have said in an inflationary world that a toll bridge would be a great thing to own if it was unregulated."
"Because you have laid out the capital costs," he continued. "You build the bridge in old dollars, and when there is inflation, you don't have to keep replacing it — a bridge you build only once."
The investor has extended his love of toll roads to other businesses that dominate their markets, require little capital investment, and can raise prices without losing customers to rivals. Apple, by far the biggest holding in Berkshire's stock portfolio, is one example as its strong brand enables it to raise prices every year, and it takes a cut from virtually all purchases on its App Store.
"Buffett got his toll road, and it's the best toll road that's ever been created, the iPhone," Bill Brewster, a Berkshire shareholder and the host of "The Business Brew" podcast, said last year.
Elon Musk also recognizes the value of owning scarce resources or infrastructure and restricting access to them.
"He loves to control bottlenecks," Bill Cohan said during a recent episode of the "On with Kara Swisher" podcast. "He's very good at figuring out what those are and then exploiting them," the author and journalist added.
Cohan was commenting on a recent New Yorker article that underscored just how much the US government relies on Musk's infrastructure, whether it's charging stations for electric vehicles, Starlink access for Ukrainian forces, or SpaceX rockets for transportation.
Targeting chokepoints has been a key element of Tesla's corporate strategy for years.
"By investing in batteries — producing them at scale and in better ways — Tesla is betting that they will control the bottleneck, and thus the profit center, for the future of the industry," Nathan Furr and Jeff Dyer wrote in the Harvard Business Review in February 2020.
Musk recognized that batteries were a key limiting factor for electric vehicles, and developing superior ones could give him a big competitive edge in the nascent industry, the professors said. They also highlighted Musk's investment in EV charging networks as an effort to address the perennial bottleneck of long-distance driving, and a way to give Teslas another advantage over other electric cars.
The serial entrepreneur is still thinking along the same lines. When an X user posted earlier this year that typing was the "largest human progress bottleneck," Musk replied with a single word: "Neuralink." He was suggesting that his startup, focused on building a brain-computer interface, could replace typing as a method of information input.
Buffett appears to like toll roads because they're a simple, safe, and reliable way to make money. Musk seems to be drawn to bottlenecks because addressing them enables technological progress and grants him enormous influence — whether he has to build better batteries, charging networks, reusable rockets, communication satellites, mind-control devices, or anything else.
Yet it's clear that both men recognize the immense value of scarce resources and access paths, and the power they grant to whoever controls them.
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