Buffett's new train set
Warren Buffett just turned 79, but to quote a great line from the Washington Post, he invests “like an 8-year-old boy in the 1950’s.” Coca-Cola, Dairy Queen, candy, chewing gum and now a choo-choo set. But seriously, what does his purchase of Burlington Northern Santa Fe tell us about the economy?
Buffett already owns 23% of BNSF, but in Berkshire Hathaway’s biggest deal ever, he’s buying the rest. Here’s what Buffett said on CNBC this morning:
Rails last year moved 40 percent, more than 40 percent, over the country. They moved more than all those trucks, just the four big railroads. It’s a very effective way of moving goods. I basically believe this country will prosper and you’ll have more people moving more goods 10 and 20 and 30 years from now, and the rails should benefit. It’s a bet on the country, basically.”
It might also be a bet that energy prices are going higher. From Bloomberg:
“As oil prices go up, higher diesel fuel raises costs for rails, but it raises costs for its competitors, truckers, roughly by a factor of four,” Buffett told shareholders in 2007 at his company’s annual meeting. “There could be a lot more business there than there was in the past.”
Finally, the BNSF deal might be a bet on China. From the Washington Post’s Economy Watch:
China craves the coal and other raw materials that the U.S. produces. Those commodities fuel the great economic engine that is China, which is the factory to the world. U.S. coal and goods are sent via rail to Pacific ports and then shipped to China. With his round-out purchase of Burlington Northern, Buffett thinks China will continue to be strong.
By the way, Buffett also announced a stock splitting plan. Berkshire’s class B shares would go from $3,000 a piece to only $65 a share!
Of course, class A shares are still priced at just under $100,000. Each.
- Nov 3, 2009 9:41 AM — Scott Jagow
- 16 comments
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Comments (16)
November 3, 2009 10:47 AM PT
Dang it! Burlington was one of my long-term stocks. There are hardly ANY good blue chip stocks anymore. Here’s one decent stock and some rich guy walks in ther room and buys all the stock up! There’s nothing left for the little guy.
I’m really irritated. Whatever happened to blue chips? Anyone remember when GE used to be good but they decided to play finance instead of building things. Maybe it’s time to buy foriegn companies.
November 3, 2009 11:20 AM PT
That 30%+ premium in one day must really suck for you :)
November 3, 2009 11:43 AM PT
It’s okay but that’s not the point. The point is I’m trying to save for retirement and was hoping for 20 years of re-invested dividends not some one-year gain that’s going to mess up my taxes.
I have no idea where to put my money. I can’t find a decent blue chip company that either doesn’t have too much debt or hasn’t decided to play hedgefund/bank and get burned. Even Berkshire Hathaway has gone stupid with derivatives, so I don’t want any of their shares.
Maybe Apple will finally pay dividends someday.
November 3, 2009 11:24 AM PT
BNSF revenues by segment: Consumer Products - 31% Coal - 27% Industrial Products (machinery, lumber, chemicals) - 21% Ag Products (corn, wheat, beans) - 20%
If you think Buffett is right, I’d probably start looking in these industries for some solid buys.
November 3, 2009 11:46 AM PT
Actually about 1/3 of my savings is in just that: Materials and Mining.
I would like to find a company that makes things with the materials that have added-value and sells them for a profit. That’s where the long-term value is.
November 3, 2009 12:50 PM PT
Interesting info, but I’m reminded of him buying NetJets, people went Gah-Gah for the idea of fractional aircraft ownership. I’m not sure NetJets is panning out for him like he was envisioning, but not every horse you bet on is gonna win, right?
November 3, 2009 1:22 PM PT
Yeah, Net Jets was supposed to be hubbed out of Columbus, Ohio. The same place that was the hub for Skybus. Anyone remember Skybus, the airline that ran out of gas on Friday and left thousands stranded? Didn’t Chrysler hire their former chairman?
November 3, 2009 2:21 PM PT
That’s a great story title. Buffett reminds us that the board game Monopoly is largely the model of the American economy and that the rest of us will be lucky if we can hang on to our Marvin Gardens.
November 3, 2009 2:25 PM PT
Good one!
Ἱερώνυμος Αματι Nώνυμος: responding to Tom Shillock | RespondNovember 3, 2009 6:20 PM PT
” Marvin Gardens. “
I beg you pardons. I never promised you Marvin Gardens. Along with Community Chest. Get Short line and the B & O to invest!
joey: responding to Tom Shillock | RespondNovember 4, 2009 9:42 AM PT
A game can be won or lost because of Marvin Gardens. The owner of Park Place and Boardwalk can use all his cash to throw up some condos then have no liquidity to stay at the lovely Marvin Gardens Motel 6.
November 3, 2009 5:00 PM PT
This might be an historical event in American business. If this deal goes through, it might be the first totally private ownership of a major American Railroad in the history of this country
November 4, 2009 7:36 AM PT
This is an omen of whats to come.
How are little investors supposed to compete for a piece of capitalism if an increasing number of super-rich people keep privatizing all the good companies?
Answer: They can’t.
November 4, 2009 12:53 PM PT
When I heard that some economists are speculating that Buffet is betting against a viable climate change policy and for future increased coal use, we must remember that Train transport and travel is much more energy efficient than truck, car and air travel. I’d like to spread the rumor that Buffet is betting for a comprehensive carbon cap and trade plan in hopes that he’ll have carbon credits to sell from his new transportation acquisition.
Ayrin Zahner UC Berkeley, DCRP
November 5, 2009 1:46 PM PT
Either that or he needs income to cover his losses in derivatives.
November 15, 2009 11:09 AM PT
Despite Buffett’s folksy demeanor and outspoken critiques of the more destabilizing and dishonest practices of finance (derivatives) and business (not expensing options) we shouldn’t forget that he is one of the worlds’s arch oligarchs. He’s not unlike John D. Rockefeller who had a similar appreciation for the benefits of monopoly in a ‘market’ economy. Rockefeller indirectly controlled the shipping rates of the railroads of interest whereas Buffett will control rates for customers of BNSF because they have no alternative. Private monooplies and oligarchs are metrics market failure not economic market health, just as in America’s Gilded Age.
We shouldn’t forget that Buffett (who advised Schartzenegger) got the head of Calpers removed, a guy who was acting on behalf of shareholders against the corruptions of managerial capitalism (cf. The Battle for the Soul of Capitalism by John Bogle).
When the U.S. is economically compelled to rebuild its railroad system to provide the level of energy efficient public transport that rails provide in Europe, Japan, Korea, etc., Buffett will probably be bought out at a fabulous profit. Americans have been fleeced time an again by railroad owners and their congressional lackeys since the original transcontinental RR was built and then immediately rebuilt. Buffett expects to get his turn in line in this venerable history.