Table of Contents

Right-of-Way

A Right-of-Way is a legal right, established through an agreement or grant, that allows a person or entity to travel across or use a piece of property owned by someone else for a specific purpose. Think of it as a permanent permission slip to use land you don't own. This isn't just about a friendly neighbor letting you cut across their lawn; in the world of investing, it refers to massive, strategic corridors of land used for critical infrastructure. Companies operating railroads, oil and gas pipelines, and electric transmission lines depend on these rights. A right-of-way is a type of easement, a powerful legal tool that allows the development of networks that are essential to a modern economy. For a company, securing a right-of-way means it can build and maintain its infrastructure without having to buy every single parcel of land outright, creating a continuous path over potentially vast distances.

The Investor's Right-of-Way: A Path to Profits

For a value investor, a company that owns an extensive and exclusive right-of-way network is like finding a map to a hidden treasure. These legal rights are often far more valuable than the physical assets built upon them, creating durable competitive advantages that can last for generations.

A Fortress Built on Paper

The true power of a right-of-way lies in its ability to create a formidable economic moat. This moat acts as a massive barrier to entry, protecting the company from competitors. Imagine you wanted to compete with a major railroad company like Union Pacific. You wouldn't just need billions for trains and tracks; you'd first have to acquire the legal right to lay those tracks across thousands of miles of private and public land. The political, legal, and financial hurdles would be practically insurmountable. This gives the existing company a near-monopoly on its route. The same logic applies to a pipeline operator with a cross-country network or a utility company with transmission lines powering a major city. A competitor simply can't build a rival network next door.

More Than Just a Line on a Map

A right-of-way is a classic example of an intangible asset whose true economic value is often poorly reflected on the balance sheet. The accounting value might be based on the historical cost of acquiring the rights decades ago, which could be laughably low compared to its value today. Legendary investor Warren Buffett understood this perfectly when his company, Berkshire Hathaway, acquired the BNSF Railway. He wasn't just buying trains and tracks; he was buying an irreplaceable, continent-spanning network of rights-of-way that generates predictable revenue year after year. As an investor, your job is to look past the reported book value and recognize the immense strategic value of these exclusive corridors.

Analyzing a Company's Right-of-Way

When you find a company whose business is built on such a network, it's time to dig deeper. Not all rights-of-way are created equal.

What to Look For

Ask yourself these critical questions to gauge the quality of the company's moat:

Potential Potholes on the Path

While powerful, these assets are not without risks.

The Bottom Line

A company that controls a strategic, irreplaceable right-of-way network possesses one of the most durable competitive advantages in the business world. This legal privilege creates a powerful barrier to entry, protecting the company's long-term cash flows and rewarding patient, insightful investors. When you see a business built on this foundation, you may be on the right track to a fantastic investment.