Buffett Bullish on America

Buffett Class at CardozoEconomic prognosis positive is the signal to hear today from Warren Buffett and Berkshire Hathaway’s agreement to buy 100% of the stock of the railroad, Burlington Northern Santa Fe, consolidating the company’s 22% ownership stake in a $34 billion acquisition.Bull

As an author of books on Buffett’s investment philosophy, including a compilation of his letters I prepared for a law review symposium at Cardozo Law School in 1997, I’m quoted in tomorrow’s USA Today story covering the deal (written by Adam Shell).

Adam’s story correctly reflects my take on the deal as squarely meeting Buffett’s traditional criteria: a business within Buffett’s “circle of competence” (i.e., that is easy for him to understand), run by people he “likes, trusts and admires,” and at a price reflecting good value for money.

More broadly, the story reflects how this acquisition is a very public statement that Buffett is “bullish on America,” the long-time slogan of erstwhile investment bank Merrill Lynch (now a part of Bank of America).

There’s one way the deal and Berkshire’s disclosure is unusual: Buffett says this acquisition is a big “bet” on Burlington, its management, and the US economy. Buffett does not usually talk about investing using the word “bet” or other gambling terms, eschewing them in favor of emphasizing cool, calculated, rational evaluation of business and its environment.

Another notable feature about this investment, Berkshire’s largest acquisition ever, is how Burlington is particularly strong, among railroads, in transporting goods from West coast ports into America’s heartland. Forecasting high returns doing that suggests a prediction that, as the US economy recovers, the country will remain heavily reliant on imports, certainly of goods and probably of energy, especially from China and East Asia.

Maybe there is a gamble here, on both a US recovery and the post-recovery shape of trade, manufacturing and consumption. And there is always risk in investment. But this one fits enough within traditional Berkshire investments that it suggests being bullish again may be a safe bet.   [Disclosure: I own Berkshire Hathaway stock, and have for many years.]

 Photo Credit: Norman Goldberg (Buffett teaching my Corporations class at Cardozo Law School, 1998)

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3 Responses

  1. If this deal goes through, it might be the first totally private ownership of a major American Railroad in the history of this country

  2. Christa says:

    You know his habits far better than I ever could, but I had a suspicion that he designed the betting language in such a way that people reading the language would become more optimistic about investing in US stocks.
    For example, if Buffett had simply said he invested because after analysis he believes that railroads are smart right now, people might buy railroad stock, but they would not buy much of anything else. People likely feel that they lack the same skills for analysis of investments, so they are uncertain about placing bets, so to speak, in investments they think but are not sure are good.
    However, when Buffett places a “bet” on the economy as a whole, that gets people thinking, “I am in a risky position, too, and I am uncertain, too, but if Warren Buffett is willing to take a risk, maybe I should.”

  3. Blunt Instrument says:

    Railroads run both ways. Could this also be characterized as a prediction on increasing exports as the dollar falls further and foreign demand for US farm and manufactured products soars?