Warren Buffett´s Legacy

One of the oldest inventions of the world seems to be one of the pillars on which to support the future of United States economy. Or at least that is the vision that the investment `guru´ Warren Buffet has to make the largest purchase in his career, a $26.3 billion deal to buy Burlington Northern Santa Fe Corp (the largest US railroad operator), he called the acquisition an "all-in wager" on the U.S. economy.

Everybody knows that Mr. Buffet is not a speculator and that he bases his theories in a deep analysis of sectors. That´s why “I´m unsure about the immediate future but an efficient railroad system is vital to U.S. prosperity” Buffet says.

So...what does he see?

As the WSJ mentions in his article (Art.1) “Mr. Buffett is betting that in an era of high fuel costs, railroads will perform better than the trucking industry. More broadly, the investment is a wager on the long-term strength of the U.S. economy as it emerges from a prolonged recession.” This is how Buffett is confident that, after the recession, the world's largest economy will rebuild again and encourage the transportation of commodities and goods within its borders.

What´s behind this purchase?

There are two main reasons, first one is that oil prices will keep increasing and everyone is aware of the shortage of this good. It´s also proven than diesel trains are inherently more efficient than planes, trucks or cars. As we can see in the table below.

Another major reason for this huge investment it’s that the commodities market goes hand by hand with Burlington Northern on the index. We can see in the graph how the shares of Burlington replicate the movement of the commodities.

The coverage on the media about this news was very similar in every newspaper, for the New York Times the story was told in an objective perspective giving support to Buffett´s movement into the railroad industry to carry the U.S. economy “America’s best-known investor, Warren Buffett, is making his biggest bet yet on the nation’s economic future by buying, of all things, a railroad. They also ironically compared the new purchase with his childhood dream to get a train set form his father “His new toy will not come cheap”. Same in the Guardian where they also comment about his new toy “is buying himself an enormous train set by acquiring one of America's largest freight railway operators, Burlington Northern Santa Fe, in a deal worth $44bn (£27bn) that signals confidence in a long-term revival of the US economy.”

Warren Buffett's Legacy

To conclude this last entry it´s amazing how with 79 years and the second largest fortunes in the world, Buffett has no plans to retire, but want to be sure that the business of Berkshire will last for decades after he´s gone. He is betting that any new technology will not outdate the train and I think he may be right.

(Art.1)http://online.wsj.com/article/SB10001424052748703740004574513191915147218.html

(Art.2) http://www.nytimes.com/2009/11/04/business/04deal.html

(Art.3)http://www.guardian.co.uk/business/2009/nov/03/warren-buffett-buys-bnsf-railway

(Art.4)http://www.oilprice.net/en/articles/buffett_buys_railways_because_of_peak_oil.php