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Warren Buys a Railroad November 5, 2009

Posted by shaferfinancial in Finance.
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Warren Buffett bought the balance of Burlington Northern Railroad [78%] this week.  As usual there is much chatter, most of it negative about the latest Berkshire move.  But the truth is this is classic Buffett.  He bought a well managed business, for a fair price.  Now much is made of his 30% above market price, but this is from people who have never bought a local business, let alone a $34 Billion business.

Does anyone out there think that railroads are suddenly going to stop being the transportation of choice for coal?  Or stop moving product around the country?  Does anyone think that trucking will be able to compete with the price of diesel where it is at or where it is going? Consider the railroad is profitable in a recession, how much cash flow will it produce as the economy heats up?

Just another reason to believe that Berkshire Hathaway will continue to double the returns of the S & P 500 Index.

Now, the other move was that it is splitting the B shares 50 to 1.  I am agnostic about this, but this move probably results in Berkshire being included in the S & P 500 index in the future.  So all those index mutual fund investors can get  some of those superior returns!

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