CaptainJJack

Berkshire Hathaway Stock Portfolio: At Risk of Resembling an Index Fund?

I own BNI, and I disagree with Berkowitz and the critics of Buffet's deal.

Yes, he paid a lot. But, in my opinion, you get a lot when you become an insider.

But, by far, the overriding dynamic is that railroads are now clear monopolies in most of the areas they operate. Just look at a railroad map of the US, and you find little overlap.

The main competition is trucking, and if you look at the economics of that business, you find it turns on finding and holding on to truck drivers.

Their key constraint is capital: They have to find a way to fund the initial costs of a trucker getting into the business. I haven't seen much on this lately, but I am guessing that banks are reluctant to loan person enough money to buy a rig and finance their first years in operation.

So, I think the railroads will be very profitable in the future, and I am willing to bet rates will rise even if other prices are falling.

Buffett's Recent Portfolio Changes: What's the Message?

As a long time holder of BRK, I have followed Buffet for many years, and he makes a clear distinction between the 20 or so once in lifetime stocks to own, and everything else.

As a necessary condition, he looks for integrity and a focus on the long term shareholder. If a company falters this condition in any way, at any time, it's a goner.

After that, he focuses on the businesses. He likes businesses with strong cash flow, and he LOVES businesses with a history of strong cash flow and relatively low (compared to revenue) ongoing fixed investments. Look at his Coca Cola, American Express, Sees Candies, Wells Fargo, and Proctor and Gamble.

Historically, he has shied away from businesses that require a high fixed investment, especially in intellectual capital such as technology (as far as I know he has never owned a share of Microsoft even though I believe Gates is on his Board and is a good friend) and drug stocks. He claims that he just doesn't understand well enough what makes these businesses run.

This makes his new investments in drug stocks somewhat puzzling, although, at least with J&J, you could make the argument that it is a P&G look alike in the health care space.

BNI was also puzzling until I figured out how railroads were regulated, and I expect that Buffet will keep this stock as long as they are virtually exempt from antitrust laws even though as a business with high capital costs, they look more like airline stocks than anything Buffet would own.

As for COP, I am guessing he got into this using the standard developed by Graham that suggests for high capital intensive stocks in a rising market, you always want to own the second tier, less efficient companies. When the price of commodities fell, and not expected to rise soon, Buffet had no reason to own Conoco.

As for Buffet's political leanings, I have found him to be pretty middle of the road. He supported Obama this time after seeing eight disastrous years where, in the end, we tripled our debt, created a massive financial crisis, did not add a single job (actually, we will end up losing an enormous number of jobs), saw tax cuts lead to people buying Chinese goods at Walmart , caused a war that cost trillions, saw no increase in the real income in this country in almost a decade, and did nothing to address the long term Medicare crisis except, by adding a dramatically underfunded prescription benefit that made things even worse.

Buffet is no wild eyed Democrat, but it was Obama compared to what? That he still feels this way is more a result of where the Republican party, which has become the party of Rush Limbaugh, is as much as any feelings towards Obama.