Energy pricing will fluxuate, but the manufacturing has changed dramatically. He understands that. Go back to the original Berkshire Hathaway company. It was a New England textile manufacturer with assets but a declining market. He bought it and used the assets to move forward.
To think that the energy pricing is only going to go up is dangerous. We go thru these trends about every 10 - 15 years, but the manufacturing has left. It has to be transported. There are only so many methods of doing that.
Remember that BH is involved in transportation. They own XTRA Lease.
Well, he didn’t just get the revelation on those items last week, when BNSF stock was at all time high.
And if he did just get that revelation last week … well, …
I repeat, the “obvious” is not an explanation, because they were just as “obvious” two years ago, four years ago, take your pick, when the stock was a lot cheaper.
If he had announced last week that he was buying BNSF because he just discovered that energy prices are going to change, and that manufacturing has changed dramatically, or that he just looked at a map and discovered that the BNSF served West Coast ports, and that he didn’t know that before, I think people would have started to worry about Warren …
Buffett didn’t get his reputation by being the last guy on the block to notice the obvious.
We dont know when he started buying adn at what price…do we? I havent really checked into this other than reading on this forum. Do we know how many shares and total price paid for an average cost per share?
Hathaway is a 50% owner of EMD so maybe more SD 70ACe’s are in the future and also maybe some straight SD70M-2 also. Hey you have to keep your largest shareholder happy right.
BH made it’s last purchases on April 4th and 5th to push it over 10% holdings and triggered the filings:
4-4-07 417,900 shares @ $81.81
4-4-07 10,000 shares @ $81.72
4-5-07 1,219,000 shares @ $81.18
The total shares held by BH’s three insurance subsidiaries (National Indemnity, National Fire and Marine, and Columbia Insurance) totals 39,027,000.
Looking at the price history, BNSF said goodbye to the $60’s in late September and moved around quite a bit in the $70’s, closing above $80 on October 16th. Since the first of the year it has been moving very very steadily from the $73 range up to the low to mid $80’s before the announcement.
BH has been accumulating for awhile and has been very steady since the first of the year, probably earlier than that.
Well, that was my thought. Any substantial order for locos, is HUGE money. So, by placing himself on both ends of such a transaction, he pretty much gets to write his own ticket. Plus take any gain on the ownership of the BNSF stock that would happen regardless.
Well, looking at BH’s cash position over the last decade, there is an interesting pattern. They seem to have been pretty heavily invested at the time of the dotcom boom, and then began to convert to cash 3-4 years ago. Now, going into cash before the stock market really takes off is not exactly good timing. You miss the appreciation in stock that presumably was the reason you bought stock in the first place.
Then, his vaunted position in Coca Cola occurred during a time when Coke began to crumble – it’s historic primacy over Pepsico disintegrated – Pepsico is now the king of the hill, and Buffett resigned from the Coca Cola board – one of the few he took an active role in. Good call, bad call?
Then, to be sitting on piles and piles of cash for three years or more, while interest rates are at historic lows is also not exactly “textbook” portfolio management; all the while watching good companies throw off cash and stock appreciation right and left.
Then to move on railroad stock at a historic high at a point in time when it actually makes sense to move into cash, according to Buffett’s own past track record – well, it all amounts to an interesting spectacle. We are coming to the end of a business cycle. But, we are not there yet. There would be plenty of time and opportunity to buy good railroad stock at lower prices. No need to get in a rush, at this particular point in time. And there was plenty of time to buy this stock earlier – at far lower prices.
That huge cash pile meant Buffett expected something much earlier, and it obviously didn’t happen. Oh well, no one cries when they still have $40 billion in the bank. But, he’s moving very little into stocks – the railroad pla
“Well, the old argument used to be that capacity caused prices to fall, and constrained capacity caused prices to rise.” is very true.
But there’s another variable in play here as well. Yes, there probably will be some drop off in traffic as the business cycle cools; but with the opening of the last segments of Chicago - Los Angeles double track corridor, BNSF will begin to enjoy
Interesting comments regarding BH’s cash positions and seemingly being at the wrong end of the cycle. However…if BH was heavily invested at the time of the dotcom boom, then it certainly worked out well, didnt it?
Lets see, Buffett was tsk-tsked for being out of touch and avoiding technology stocks…see Barron’s cover story (December 27, 1999). Yet over the next three years BH shares appreciated 40% while the NASDaQ lost more than 60%. So, if he was fully loaded, it was in companies which allowed BH stock to perform quite well.
Perhaps you should read BH’s annual reports, they are well worth the time invested…well thought out and well written. Unlike most annual reports, these contain considerably more than glossy pictures. Buffett and Munger discuss at length their investments and mistakes made.
All annual reports are available on line. Usually the reports take about an hour to read.
Well, what I was trying to point out was that he had about $3 billion in cash during that time – he was heavily invested which meant he obviously thought it was at the beginning of a business cycle. Compared to $40 billion now.
Well aware of his feelings about tech stocks; but he had a tiny cash position during that period of time – and of course both tech and nontech had quite a run during that period. However, if I tried to identify the time period as the non-dotcom boom, I’m not sure anyone would have understood the time frame I was referring to.
And I agree. The point of my earlier post was to the effect that something will happen in the next downturn that hasn’t happened before as the rail industry as a whole “decongests” and that will be a reduction in marginal costs, which is what you are saying above. The difference between that reduction occuring as the result of a downturn is that there is no additional investment necessary to make it happen; whereas if and when it happens as a result of new constuction, that adds a cost element.
I believe that it was to the charitable foundation established by Gates, more than a slight shade of difference there. As mentioned earlier, Buffett has customarily been a long-term investor, and he sees things in that light.