Posted on 11/03/2009 9:42:27 AM PST by Second Amendment First
Amen. The bottom was in March. It doesn't take an investment genius to know that in hindsight.
Besides, only monkeys pick bottoms.
I think this is Buffett’s thesis going forward:
1. Moody’s was a dog, and the rating agencies are about to get raked across the coals. So Buffett is selling his position in Moody’s. Has been selling it off all summer. As a result of this sale, he’s going to have some cash.
Another dog going forward is the Washington Post. Buffett is the single largest non-family shareholder the WaPo, and I’d expect to see him start selling his position in this going forward. Buffett has been quoted at length in the last year as being pessimistic on the newspaper business.
Net/net is that he’s got a bunch of cash now and yet more going forward that he’s going to need to put to work.
2. The prospect for huge blowout cap gains going forward is grim. What he needs are businesses that throw off cash. Buffett likes cash flow. Lots and lots of cash flow is the way to attract Buffett.
This, BTW, is one of the reasons why I despise these authors who advise people to “invest like Buffett.” You and I can’t invest like Buffett. We can’t go out and wrap our arms around 25 to 100% of a company and completely capture the free cash flow as it is taken private. What Buffett does and what we can do are two completely different things.
3. BNI has a huge chunk of their business that is still regulated and served under tariffs - eg, the coal transport portion of their business. If you came into Wyoming, you could see these 1.2 mile long coal trains, with three engines up front and two on the tail end, pushing mountains of coal eastwards to the midwest to burn in midwest power plants. The trains leave every day of the year, without stop.
So what if Congress passes cap-n-trade? The costs will merely be passed on down to the ratepayers. BNI will continue to mint coin at the ratepayers’ expense. They simply don’t care. There is nothing extant other than nukes that could replace the huge amount of coal-fired base load power we have in the US... and I don’t see much movement towards sanity in power generation. People keep talking about wind and solar... which is a great way to know that these people aren’t serious. Buffett knows that wind/solar are a con game, won’t amount to a popcorn fart in a hurricane in the total power portfolio and that the name of the game is base load power generation. That means coal or natural gas.
So if you want big cash flow off one of these, you pick up a pipeline company or a rail company. Buffett picked the latter.
4. The non-regulated portion of BNI’s business will turn up eventually, and in the fullness of time, they’ll wrap their arms around yet more freight/intermodal business because they have some of the best service and lower costs than other rail lines. There’s still plenty of regional and local rail lines that they could pick up, part out and use to expand their market.
Dow 6600 was a period of chaos and massive government interference. Hardly the time for any large bets, unless forced to do so by the government.
Are you sure? seem to read BNSF at the coal mine by Roundup as well as the station at Rocker (by Butte)
Thanks for your fine analysis. I agree with most of what you say, except for the passing of cap and trade, which is supposed to kill coal generation, which would also hurt the RR’s severely.
OK, well, maybe not entirely left the state. I do now just remember that the trains come and go from the coal mines in Colstrip too, sending the coal out east to Minnesota onto barges and headed down the river.
“Without jobs...real jobs...there will be and can be no economic recovery!
Yes...it really is that simple.”
You know, I haven’t banged this drum for a long time, but your comment compels me to say it again:
Where are all the freepers who cheered when we offshore outsourced manufacturing? You know, the ones who said it would be good for us in the long run and would free Americans for “more important” things?
Regular friggin’ geniuses those folks. And they skewered me every time I said losing manufacturing jobs wasn’t a good thing.
Those are grain elevators. The trains haven’t run in this part of the state for 20 years. Back when BNSF hadn’t merged with Santa Fe yet.
Hello?
We know a recovery is in full swing when Soetoro starts taking credit for the economy. Until then it’s still a recession and it’s all Bush’s fault.
Hi there!
From the Wall Street Journal:
Mr. Buffett’s move appears to be a bet that the freight industry is poised for recovery, though it hasn’t shown much of a rebound yet. The best that most rail executives have said about volume is that it seems to have hit bottom. Burlington and other top railroads are considered a barometer of economic activity because of the breadth of goods they carry, and Mr. Buffett has said he uses weekly railroad data as a proxy for the economy’s health.
...
The purchase would help secure a supply chain for Berkshire’s rapidly expanding energy businesses. Berkshire owns MidAmerican Energy Holding Co., which operates a natural-gas pipeline and power companies in the Midwest and Northwest. Burlington tracks run through the regions, a coal-supply route for power plants.
Anyone who studies this man realizes one thing quickly: It's always about the money he can make for his shareholders.
My Suggestion
If you think he's going to get some huge sweetheart deal from the Obama administration, then buy shares of Berkshire Hathaway yourself - the B stock is going to split as part of the transaction so it will only be $65.30 per share (the A shares will retain their $100,000+ value). That way, you will profit in exactly the same proportion as he does from his actions.
1.) Buffett just poured billions upon billions of dollars developing a secret wind farm in Iowa through a subsidiary of MidAmerican Energy that most people don't know about yet (dig through the regulatory filings and you'll find it). The theory is that MidAmerican is going to perfect the technology and then roll them out throughout the world, becoming the largest wind producer on the planet. Berkshire's going to have huge wind exposure in the coming decade if this test works out fine on a return on capital basis.
2.) The Washington Post is much more than a newspaper company. It owns cable television stations, magazines, and a huge portion of the earnings comes from Kaplan, the educational instruction subsidiary. They've been moving away from the core newspaper business for a long time, making it a smaller and smaller portion of profits. Plus, the cost basis on the entire $2+ billion position is roughly $5 or $10 million, meaning that if he sold it, he'd be subject to massive taxes on the capital gains. He may sell WPO, but I doubt it. It's not just a newspaper company anymore and he'd lose many, many hundred of millions of dollars to the IRS that now get to work for shareholders.
3. You can use Buffett's investment philosophy but you have to be willing to buy private companies. He started with tiny windmill farms like Beatrice back in the 1960's. Someone who's saved up $100,000 over several years would definitely be able to get an SBA loan to buy $600,000 to $1,000,000 hotel in certain circumstances, or open their own Baskin' Robbins and use the profits to start buying up other businesses in their town. His original purchases were tiny, pathetic companies that had virtually no profit when he brought H. Bottle in to fix them. Most people with good jobs and a decent pile of savings could come up with the cash to buy a company and start draining money out of it. I think it's a perfectly valid investment philosophy.
I doubt most people have the interest to do it, though. Everyone wants to skip to the $44 billion deals and ignore than 50+ years of work that started buying tractor supply companies in tiny towns in Nebraska and Kansas using every penny you could get your hands on from both your own bank account and that of your family and friends.
What a silly question to ask!
Warren Buffet picks up individual undervalued COMPANIES. The bottom in question is that of the MARKET. There is simply no connection.
They only apply to journalism schools when all other graduate schools have rejected their applications.
He is not involved in politics. He leans left and supported Obama, but he does not involve himself in politics.
A gun may hang on the wall and never fire for decades. Warren Buffet is well known by and supports the Dems, but there is no evidence of his lobbying.
It's good to be skeptical in this matters, but you simply went to far.
You make such astute, well-reasoned posts.
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