Warren Buffett's Bet on Rail and America

Includes: BNI, BRK.A
by: Chris Krasowski

It's not so much a bet on rail as it is a bet on the American economy; Berkshire Hathaway (BRK.A) and Warren Buffett's purchase of Burlington Northern (BNI) which involved buying the remaining 77% stake to take complete control over the railway company is a stern statement about the direction and prosperity of America. The $44Billion value of the deal including debt and previous investments makes it, for Berkshire, the biggest investment in the history of their business.

An efficient rail system, especially one built on high-speed rail transit, has been one focus of the current U.S. Administration with plans calling for an $8Billion investment in rail as part of the Stimulus Package, with another $5Billion rail investment set aside in the budget for 2010. While President Barack Obama's plans call for efficiencies and high speed in the passenger rail business, the infrastructure work is sure to bode well for the transports and delivery businesses as well.

It is in this business that Mr. Buffett plans to play the recovery of American economics. Eventually as demand for good picks up with improving unemployment, the demand for transport of those various goods for manufacturing and sale will boost the prospects of companies like Burlington Northern.

Investors over the years have learned to trust the calculated wisdom of Mr. Buffett, and it generally isn't a good idea to bet against the man who has built one of the biggest fortunes in our time. As he's shown as recently as the financial crises (with an investment near the bottom in Goldman Sachs that's seen much- applauded profits), the Oracle of Omaha isn't sitting on any of his laurels. This investment is as much a bet on an American recovery in jobs and economic growth as it is about the prospects of the two hundred year old rail business.

Even if investors aren't convinced rail is the future, the actions of one of America's wisest and most patient investing minds have to taken seriously.

Disclosure: Author holds no position in BRK.A or in BNI