http://moneycentral.msn.com/investor...y&stmtView=Ann

This thread is to give you a summery of what to look for when you buy a stock. If you look at the stock you can easily see BNI was able to increase revenues per share at a very good clip. You can also see shares outstanding dropped. All you have to do is project the trend and do an estimate of what you think earnings per share would be in 10 years.

But, the more important approach would be to think of the long term prospects for railroads. IMHO, everything will be electric in 50 years. Railroads own a lot of land thus they are going to be able to get all their fuel for free. As solar panels are dropping so fast to $1 a watt.

Congrats Buffett on such an easy pick.

Easy pick? Are you for real?

I think it was definitely a good buy for the long-term. A classic Buffett moat company. A safe, smart move. But I think this could be a clue to the macro as well bc Buffett is a master at the macro. I'm not sure however that I buy the argument that this is a big bet on the economy of the United States though. I read that right now the railroad gets only 30% of its revenues from shipping consumer products. It seems more like a bet that people will still be just eating and using commodities in the future not that the country will be doing extremely well. Prosper isn't that strong a word. The media spin on it however is it's a "bullish" bet on the economy. Looks like a bullish bet on commodities.

I think they transport a lot to Canada too but if they don't I'm sure it would be easy to build the connections. In that case it is a strong bet on Canada's economic future. Canada will be doing better than the US for awhile bc they have the oil, healthier banks, more stable currency etc.

Buffett says,
"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.

Burlington Northern made about 31 percent of its money last quarter from shipments of consumer products from the West to major hubs like St. Louis, Kansas City and Chicago.

Its next most important segment was coal, followed by industrial products like farm equipment, lumber and chemicals. It also hauls corn, wheat and soybeans, much of it exported to China. "

http://finance.yahoo.com/news/Buffet...&asset=&ccode=

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This is his bet on America, I smell and Call out his BS. I think he fears hyper inflation and oil to be over $150 so this is a great hedge for that.

In addition to being a hedge against oil inflation you could look at this perspective from the point of view of what Mr. Buffett did not buy. This purchase changes his overall asset allocation. It wouldn't be out of the question to think that he may view banking and financial services to become a smaller part of the overall economy.

Huh?

I thought this purchase is inline with his asset allocation, at least in terms of revenue according to the Journal yesterday. (A22. 11/4/2009)


First half of 2009
Sales and Services Business: $29.9 Billion
Insurance Premiums: $14.7 Billion
Utilities and Energy: $5.6 Billion
Financial Products Businesses: $3 Billion
Investment Income: $2.8 Billion

I doubt this because he bought more shares in wfc duirng the gloom days or late 2008 early 2009

It really is that easy. But the most important thing is not earnings growth or revenue growth. It is that bni will exist 30 years from now, assuming there is still is a usa.

http://finance.yahoo.com/q?s=bni/

Their earnings per share is about $5-$6, this will keep pace will inflation since nothing has changed to their business. In fact there is more business selling to China, so earnings should exceed just inflation. Regardless of what the inflation rate is, revenue will keep pace. Thus bni ROI should exceed inflation by dividend rate, buyback rate, and true growth. This should be about 10% or about equal to the eps. The market value of bni will rise with inflation. thus, you get the earnings and can always sell it in 2009 dollars (gold) for what you paid for it.

There is a little risk in hauling coal, however too many powerful people want to keep burning it. There is also a risk in the electric airplane being able to haul stuff at a lower cost.

I would love to hear what you know about the development of electric airplanes.

They're going to earn just under $5 this year. Assuming they play catch up next year and earn $6 then grow at 10% from there, it would take BRK just over 10 years to break even. Maybe slightly better on a cash basis.

I'm not arguing for or against the deal but your posts show what a MO to the RON you are.

I personally would LOVE an electric airplane that could haul (float?) coal.

Or even better: a coal powered airplane.

Steelhouse and Inf0wars for gimmicks (morans) of the year.

http://www.livescience.com/technolog...ed-record.html

http://www.youtube.com/watch?v=fWoLsJz8J5U

Electric aircraft exist. If you had supercaps in it. You could recharge it in second and then fly it to china with megatons of coal. Then fly it back. It will eventually exist. They will probably use electric ships 1st.

http://www.youtube.com/watch?v=TwyyQ1BckK0

I know electric aircraft exist, but they ain't hauling freight any time soon. 250km an hour for 8 minutes is so so far from practical its not even probably on the radar in at least a few generations.

I like Warren Buffett as much as the next guy, but I wouldn't call him a "master at macro." I think he has a very good understanding of macro, but that's not where his true strength lies. His true strength is that he's like a 27th degree blackbelt accountant / analyst of a company's long term growth prospects.

Look at his purchase of COP when oil prices were at their peak, a correction which he himself admits he had "no idea was coming." Or the fact that he has been extremely worried about inflation for the last 20 years, despite the fact that inflation has been very low. Or his repeated assertions that he has "no idea" what the stock market is likely to do over the short term (although I admit he probably has a much better idea than he lets on.)

Again, this isn't to suggest that he's bad at macro, just that I would pay more attention to what someone like Nouriel Roubini or Paul Krugman has to say about the economy than what Mr. Buffett has to say. When it comes to valuing a business though, there's nobody I would listen to ahead of WB.

I talked about in one of my podcasts how Buffett does it, its exceedingly simple.

He picks out companies that, because of their 'scrap' value, can't fall further. And he makes sure he buys the best company in whatever sector, because that gives him unlimited profit potential, he's not just benefiting off the return to mean, but also off the companies raw ability to produce value.

Its very hard to find a company that meets both requirements. Lots of research, lots of report reading, lots of feel, and patients; these periods only come during times when the overall market is down big, so you only get maybe three shots every 25 years. But when done right... look at the results.

Tbh I don't think that BNI is the best railroad to buy (for reasons I can't detail in an open forum). Buffet's only likes BNI because of the special coal location that BNI dominates (powder river basin).

However, I do agree that the PRB location, the rail lines themselves, and the trains currently have a lot of value and will always have value due to the nature of them spanning across the USA. It's also likely that we'll use rail tracks in different ways in the future for some national level wiring projects for later inventions.

I don't have any idea about why he bought so high though. Only idea that comes to mind is to entice shareholders to sell quickly.

Another less stated reason is that Berkshire owns MidAmerican Energy which is serviced by the rail lines of BNI.

Well Schiff says Buffet bought it to dump his cash and hedge against inflation as well as bet on the 'new america' which will be centered around production and exports. Seems to make sense?

http://www.youtube.com/watch?v=-gSq19tJUBs

Unless Buffet has an inside line on whats going on with BNI's future specifically, I don't think Graham would consider it value investing.

but long-term growth prospects have a big correlation to the overall economy. Even big moat companies he is famous for purchasing like Washington Post, Wells Fargo, Coke etc have business models highly correlated to the overall economy. You wouldn't do what he did if you didn't expect significant growth in the overall economy after the periods he bought them that in turn translated to company performance.

Or he may have just come along at the right time in history and is part lucky possibly. I'll give you that. An even bigger mistake than COP I feel was not selling his Coca Cola KO into the tech bubble in 99-00. It had a PE of 50 or something ridiculous.

yep he does know the intermediate pretty well. In fact calling market tops is one of the hardest macro calls there is. In 1999 he made the point that corporate profits had risen at a rate far greater than GDP growth thus this would have to correct. What do you know the bubble crashes in 2000 just months after he makes that assertion.

full source
http://money.cnn.com/magazines/fortu...9071/index.htm

shorter summary
http://www.fool.com/investing/genera...n-buffett.aspx

and in early 2008 before the crash he subtly was warning about equites. 2 million on the Dow Jones index does seem pretty impossible to me. I didn't read this in 2008 and don't read all his stuff but I wouldn't be surprised even if he was giving even more warning signs.

Buffett: Don't bank on big returns
http://money.cnn.com/2008/02/29/news...ion=2008030112

"Most big companies have been vastly overestimating the kind of returns their pension plans can realistically expect to earn, Buffett writes. He writes that a survey of S&P 500 companies with pension plans shows the companies on average expect their pension assets to earn an annual return of 8%. With more than a quarter of those assets invested in cash and bonds, Buffett writes, the implicit expected annual stock investment return is 9.2% - and that's after fees. "How realistic is this expectation?" Buffett asks.

Not very, he finds. He writes that the Dow Jones Industrial Average surged from 66 to 11,497 during the 20th century. That is a huge rise - yet it averages out to just 5.3% compounded annually, Buffett writes. What's more, were the DJIA to repeat that 5.3% average annual gain throughout the 21st century, its value on Dec. 31, 2099, would approach 2 million."

yeah, in his early days with the Partnership. Those were the Ben Graham net-net stocks. Berkshire Hathaway was actually a company selling for below quick liquidation value(net current asset value) when he bought it. Since he found Phil Fisher and Munger though he has almost completely gotten rid of that "scrap value" as you call it philosophy and is growth at a reasonable price now.

I agree with you.

But....Read "The Snowball" to understand why Buffett diverged from pure Graham.

Thx Nuc500, just ordered it...