Morningstar Magazine - February/March 2018 - 15

filled with Bakken Formation crude oil. The Bakken
crude is light oil, which is the most valuable
variety but more flammable than most crude oil.
The engineer parked the train on the main line and
went to spend the night in a hotel in town. He did
not set the brakes correctly. The train rolled
and reached Lac-Mégantic at a speed of 65 mph. It
hit a curve and derailed. The tank cars broke
open. A blanket of oil flowed into the downtown
area of the city and exploded in a gigantic
fireball. Forty-two people were killed. At least 30
buildings were destroyed.
The railroad was the Montreal, Maine and
Atlantic Railway, which was owned by a small
company. The company skimped on maintenance
of the track and the locomotives; the lead
locomotive on the doomed train was actually on
fire just before the accident. The number of
maintenance shortfalls and engineer errors were
numerous, but a modern CTC could have
prevented the accident, perhaps by warning the
engineer not to park on the track. I say only "could
have," because the level of incompetence
of the railroad company might well have outwitted
a computerized safety system.
Aviation has followed the same general path
of railroads with air traffic control systems giving
orders to each plane in the region. Although the
current system could use an update, most years no
commercial airliner has a fatal accident.
Centralized Network for Cars

How will the driverless car network evolve? There
are strong technical arguments for having
a single giant computer controlling every car,
certainly on freeways. This would allow for more
efficient highway travel at a higher volume.
Cars could be packed more densely and move at
higher consistent speeds, because individual
drivers would not be at the wheel trying to keep
a safe distance from each other or swerving
in and out of traffic, causing accidents. For local
driving, there are good arguments for each
vehicle having its own guidance system. It will be
interesting to see how it works out.

The advantages of a computerized road network
over individual smart cars are explained by a new
must-read book by Yuval Noah Harari2:
"Indeed, if we forbid humans [from driving]
vehicles altogether and give computer algorithms
a monopoly over traffic, we can then connect
all vehicles to a single network, thereby rendering
car accidents far less likely. In August 2015,
one of Google's experimental self-driving cars had
an accident. As it approached a crossing and
detected pedestrians wishing to cross, it applied
its brakes. A moment later, it was hit from
behind by a sedan whose careless human driver
was perhaps contemplating the mysteries
of the universe instead of watching the road. This
could not have happened if both vehicles had been
guided by interlinked computers. The controlling
algorithm would have known the position
and intentions of every vehicle on the road and
would not have allowed two of its marionettes
to collide. Such a system would save lots of time,
money, and human lives."
What It Means for Investors

Driverless cars, with or without central control,
would cause lots of changes. These cars are likely
to be electric, as electric vehicles are easier for
computers to control. The design of cars would be
freed up. Imagine losing a complex gasoline
engine and its exhaust cleaning system, not to
mention the steering wheel and driver's seat. The
reason to buy a Cadillac instead of a Chevy would
be only the quality of the TV and video game
console, or, for worker bees, extending a home
office into their car. Your car could be like a
detachable room plugged into a port in your house.
It detaches from your home, drives to your work
address, and plugs into a similar port in your office
building. Handy on the occasions you need to meet
someone face to face.

use as the electric utility fuel. The electric
utility industry would profit from an increase in
demand with a shift toward night battery
recharging. The insurance industry would be hurt
when individuals stop being liable for accidents.
You don't need liability insurance when you
ride in a train or an airplane, and you won't when
your car is under centralized computer control.
Labor markets would be restructured. Suburban
parents would no longer bear the brunt of driving
the kids to ballet school and the soccer field,
freeing more time in the complex work/life juggle.
Seniors would regain the power to travel
easily, for work and social events. At the same
time, millions of professional drivers of trucks,
buses, Ubers, and delivery vans would be
redundant. There would be a lot of restructuring
to do, with consequences for investors.
Some of the restructuring would require changing
the shape of cities. Revolution in the transport
network demands novel urban architecture.
It will be interesting to see whether we choose
to control driverless cars autonomously
or through a central command. Either way, they
will permanently alter society. K
Ralph Wanger, CFA, ran Columbia Acorn Funds from 1970
to 2003.

The existing network of gas stations would be
obsolete. There would be a lot of battery charging
to do, but not along the roadside. Oil and
gas stocks would evolve, with less consumption
of petroleum but an increase in natural gas

2 Harari, Y.N. 2017. Homo Deus: A Brief History of Tomorrow, Harper Collins, p. 315.

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