In a filing released today, Berkshire Hathaway indicated that it has added to its stake in railroad Burlington Northern.  Terms of the purchase were Berkshire buying an additional 825,000 shares at a price of $79.65.  This brings Berkshire's overall ownership in Burlington to slightly more than 18% of the railroad.

For some time its been evident that railroads have been slightly improving their competitive positioning vis-a-vis truckers, with the more prevalent use of double-decker freight trains in addition to having the ability to load containers right onto trains.  The critique of the railroad investment has been that it will take the railroads years to realize these improving economics, and that Berkshire was one of few investment vehicles around that had both the time horizon and patience to wait for this to happen.  

However, its now likely that with the looming infrastructure upgrades necessary throughout the country, as well as the continued prospect of high oil prices over the long term, the competitive gains accruing to railroads could be accelerated.  In addition, with Berkshire's continued backing, one could argue that Burlington could have the ability to now make upgrades to its own network, further distancing itself from both truckers and its competition.  To be sure, though, with the consolidation in the industry over the last several decades, there are only a few firms that will benefit from the improving economics in the railroad industry, with Burlington as one of the select group. 

Justin 

The content contained in this blog represents the opinions of Mr. Fuller. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way.  This content is intended solely for the entertainment of the reader, and the author. 

On Monday, Berkshire Hathaway committed $3 billion to Dow Chemical to finance Dow's purchase of Rohm & Haas.  This is yet another move by Berkshire to act as a financier of an acquisition.  Earlier this year, Berkshire acted as a financier for Mars' purchase of Wrigley.  In the Dow deal, the investment is in bonds which will pay Berkshire 8.5% annually, and then are convertible into Dow stock.  Furthermore, Dow is currently trading in the mid-20's and Berkshire's conversion price is at $41.  Thus, it seems to me at least, that Berkshire wouldn't strike that deal if it didn't think there was upside in Dow well beyond $41 over the long haul.  If you believe in Buffett, perhaps Dow is still a bargain.

Taking all of Berkshire's recent investments together--GE, Goldman, Dow--Berkshire will receive cash flow off these deals in excess of $1 billion, which it will be able to re-invest over time into even more attractively priced investments.  What's more, Berkshire will end-up owning equity stakes in a bevy of the world's greatest companies, at what I think our great prices.

Despite Mr. Buffett recently writing an op-ed piece about it being a great time to buy equities, I seem to read article after article that chides him for not calling the bottom, or points out differences in his investment structure from most others', which seems to imply that his "advice" is misleading.  If history is any guide, when others indicate that Mr. Buffett has got it wrong or that his advice is misplaced, it is likely the best time to be following his example.  At least, an investment in Berkshire--or even some of the stocks Berkshire owns--would be prudent at this juncture of the economic cycle.

Please check back for additional updates on Berkshire, as well as a review of the conglomerates earnings shortly after they are released.  I welcome your questions and comments, so please be sure to email me at justin@buffettologist.com.

Justin 

The content contained in this blog represents the opinions of Mr. Fuller. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way.  This content is intended solely for the entertainment of the reader, and the author. 

Friday October 17, 2008

Warren Buffett recently wrote an op-ed in the New York times, where he made his case for investing in equities given the current market dislocation.  Specifically, Buffett referred to his constant axiom, "Be fearful when others are greedy, and only greedy when others are fearful."  Clearly there seems to be widespread panic in the markets these days, and yet the Oracle of Omaha is finding bargains for his personal account.  I'd also note, though, that he has also been quite active in managing Berkshire Hathaway's portfolio too, recently committing large amounts of capital to investments in General Electric and Goldman Sachs.  Here is the link to the recent op-ed:

http://www.nytimes.com/2008/10/17/opinion/17buffett.html?_r=1&ref=opinion&oref=slogin 

Justin 

The content contained in this blog represents the opinions of Mr. Fuller. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way.  This content is intended solely for the entertainment of the reader, and the author.