Buffett Bets on Burlington & America
Warren Buffett’s Berkshire Hathaway paid $44 billion ($34 billion of that in cash) for Burlington Northern Santa Fe Corp last week. BRK held 22% of BNI prior to the deal, and last week they bought the rest of it.
Atoms and Bits
Products sold today can be divided into two categories: atoms (things we can touch) and bits (information). Buffett has stated publicly and repeatedly that he does not invest in technology companies. He prefers companies that likely to have steady profits for the next several decades, not months. At the same time, there are some interesting parallels between the internet and the American railroad system. Railroads are to atoms as the internet is to bits.
What Does Burlington Northern Do?
BusinessWeek describes the company in this 2-minute video.
Higher fuel costs and congested roadways make railroads more attractive for the shipment of goods. The company is looking at hydrogen as an alternative fuel source to reduce costs & boost efficiency.
Betting on America
Buffett has described the deal as “an all-in wager on the economic future of the United States.” Railroads play a role in the movement of all goods in the country. BRK is now in a wonderful position to benefit from the coming economic rebirth, no matter when it happens.