Each morning, while getting ready for work, I enjoy four egg hard-boiled egg whites, black pepper, a multivitamin and CNBC. Today, their commentators were going on and on about billionaire value investor Warren Buffett's decision to buy up all of Burlington Northern Santa Fe railroad. I couldn't help but picture Buffett like a big kid who just wants a $44 billion train set to play with. But seriously, it's a pretty big acquisition. His rationale? He calls it an "all-in wager on the economic future of the United States." That makes sense, but let's not overanalyze this statement.
Who might do such a thing? Well, all of those people who are obsessed with Buffett's unusual success. For example, one CNN Money article seems to think this move signals that Buffett must believe the economy has hit a bottom:
Many financial experts believe that the performance of railroads, truckers and other transportation companies is a good leading indicator of how the economy and broader market will do.
However, transportation stocks have also experienced a bigger slip from their highs in recent weeks than the Dow industrials. So if Buffett is calling a bottom for this sector, it might be the case that he's making the same call for the overall U.S. economy.
Right, or it might not. Value investing, by definition, is more of a long-term play. So even if the U.S. economy doesn't hit the bottom for another six months, or even a year, the investment could still make sense in the long run. An industry like rail freight isn't likely to get a whole lot worse, even if the economy continues to stumble for several months into the future.
Buffett's rationale might have been simpler. He likely believed that he could get the company for a relatively good price and that it would be worth much more in several years -- not months. While he may believe we're at a bottom, he might be agnostic on the question. Even if we aren't at the very bottom, stock price leads recovery. So the firm's value might not decrease much further, even if the economy doesn't improve for some time.
As for lauding him in making a bet on the future of the U.S., so what? Is there anyone out there with half a brain who really doesn't think the U.S. will recover from the Great Recession? Anyone who owns any stock of American corporations -- which includes hundreds of millions of people -- believes the U.S. will improve too. And it's a safe bet. Even though the U.S. has undergone a significant and serious downturn, it's still a very rich country very focused on business. Developing nations might have higher growth going forward compared to the U.S., but that doesn't mean that the U.S. won't also grow again, albeit at a slower rate.
I was also bothered not by his comments, but my (mostly) MSM and the investoratis who hang on his every word like gospel reaction to them.
I'm not trying to discredit buffet, his record speaks for itself, but to assume anything that comes out of his mouth isn't him just talking his book, like any other money manager/trader, is just naive.
I would even go so far to say - with the caveat I haven't done the valuation myself - given his Brand/credibility, and that this appears to have been a no-contest acquisition, he could have paid far less than he did.