UncleLongHair

Berkshire + Burlington = Hypocrisy, Expediency and Full Dose of Ego?

> Just a few short months ago Buffet was all doom and gloom
> saying our economy was in financial chaos and we were on the
> road to ruin.

He wrote an op-ed piece in October 2008 telling everyone to buy American stocks, and he put his money where his mouth was. This turned out to be a mistake as he bought just before the worst of the disaster.

There are no quotes from Buffett about "doom and gloom and financial chaos". You are making that up.

Berkshire + Burlington = Hypocrisy, Expediency and Full Dose of Ego?

I agree that the deal is out of character. Buffett broke his 3 cardinal rules: don't issue stock, don't issue debt, and don't split the stock. He broke all 3 rules in the same deal.

He obviously stretched into the acquisition, and paid a pretty price as well. This is a big departure from his previous deals in almost every way.

However, I don't think this is simply hubris or some unfulfilled childish infatuation with trains. Berkshire has for a long time needed major operating businesses to go with the insurance and investments, for numerous reasons. One is simply to maximize the earnings potential of the company, but I think this deal goes beyond that.

I think that succession and hence Berkshire's long-term health factored into this deal in a few ways. I have long been of the opinion that it would be a big mistake for Buffett to leave Berkshire to his successor with billions of cash requiring investment. A single bad investment made by his successor could undo decades of careful building. He also does not want to give his successor a bunch of hard problems to address such as betting the company on whether or not to provide hurricane reinsurance. Finally, he probably has quite a short list of possible successors, and knows their skill sets.

I think the Burlington deal addresses all of these questions. It transforms Berkshire into a huge operating company full of businesses that are generally easy to run. It provides an enormous sponge to absorb Berkshire's cash -- Burlington requires billions of cap ex every year for maintenance and growth. Burlington is also related to Bekrshire's energy businesses, and I suspect that Buffett's successor will come from there (i.e. David Sokol).

So with a single deal, Buffett has transformed Berkshire into a more secure, easier to run company, with indefatigable earnings power. The opportunity to do this during a market trough, I believe, explains Buffett's willingness to stretch into it.

What Mohnish Pabrai Didn't Know Hurt Him Badly

The questions about Pabrai don't stop with Delta and Pinnacle though. Here is a list of some recent investments, and his returns since he reported them:

HNR -13%
FFH +36%
CCRT -83%
TX +25%
CRYP -43%
PNCL -83%
MDC -23%
SGU -41%
USAP -6%
LEA -62%
SHLD -28%
ATSG -88%
DFC -99%

BRKA/BRKB isn't listed here which he exited at a decent gain.

So this isn't a case of one or two investments going bad, nor of them declining just a little. 4 out of 14 declined more than 80%. His motto is "heads I win, tails I lose a little", which clearly isn't panning out.

Maybe these will all turn out to be TSO investments that rise from the ashes. It is probably too early to pass any judgments.