What Does Buffett's Purchase of Burlington Northern Say About Commodities and the Dollar?

by on
Style:
Category:
Commodities, Logistics

Every story I have seen on Warren Buffet’s purchase of Burlington Northern for $26.3b earlier this week contains a different take on “why Berkshire Hathaway did the deal. Of course we at MetalMiner have our own $.02 (which we have included), but thought you may appreciate glancing through all the possible reasons for “why this deal.

Top 6 Reasons Warren Buffett (Berkshire Hathaway) Bought Burlington Northern:

  1. Perhaps Mr. Buffett has forgotten his own rules of investing? This article discusses how he violates his own rules for “buying cigar butts and not splitting his own stock
  2. A very popular argument put forth as to the rationale behind the purchase goes like this: Buffett believes the US economy is poised to come roaring back fueling the need for the movement of goods across our vast country
  3. Some believe he had too much cash on hand, $37b to be exact, something Buffett himself says limits his ability to make money
  4. Buffett believes that crumbling roads and failing infrastructure along with increased environmental pressures around carbon emissions represent a boon to rail
  5. Buffett is signaling where he thinks dollars will get spent (e.g. on commodities), “Instead of turning to gold, Buffett sees Burlington Northern as a growth vehicle to earn more on the billions in cash Berkshire has on its books carrying coal, wheat and other resources across the nation.
  6. Or, my personal favorite, is Buffett buying the railroad because, “This is all happening because my father didn’t buy me a train set as a kid, Mr. Buffett joked in an interview.

The Times article suggested that the deal made sense, even using Buffett’s own investing maxims: only buy what you understand, buy at bargain prices and move quickly. Unlike the Times article, though, we would argue the deal was not “a bargain and subscribe to the Wall Street Journal point of view. Burlington Northern was no “cigar butt.

What’s our take? The purchase likely involves several of these rationales. But when Warren Buffett does the biggest deal of his career and it happens to involve trains to carry commodities, do we have any doubt as to where the Sage from Omaha thinks metal markets will move?

Cornelius Vanderbilt must be chuckling in his grave.

–Lisa Reisman

Comments (4)

  1. Anonymous says:

    Do BNSF had any other bidders ?
    Does BNSF worth this much?
    IS King of omaha manipulating commodities like before?

    Metal research team at Beroe thinks differently..

  2. Jason Busch says:

    What does the metals research team at Beroe thinkg? Curious.

  3. Tom Hughes says:

    Didn’t Burlington Northern inherit the metals and forestry legacy of James J Hill’s Great Northern Railroad? Something tells me there is more to BNSF than simply a railroad.

Leave a Comment

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.