Buffet's "All In" Bet

I must confess that I do something, which I tell my clients not to do. I watch CNBC.

I can’t help myself. I like watching CNBC, even though I don’t care about the daily machinations of the stock market or what’s happening with individual stocks. You can go crazy from the cacophony of financial information and endless commentary from talking heads throughout each business day. I watch more to follow the major events and trends that shape the financial markets. Every so often, something noteworthy happens.

Monday morning, a mundane discussion was interrupted with breaking news that Warren Buffet’s firm Berkshire Hathaway Inc. had just purchased Burlington Northern Santa Fe Corp. This was big news, because it came as a complete surprise even to the reporters at CNBC. It is noteworthy, as this purchase was an exceptionally large transaction even for Buffet. The great man himself came on the show with an exclusive telephone interview to talk about the deal with the CNBC anchors.

What makes this a compelling story is that the purchase essentially represents in Buffet’s own words his “‘all in’ wager on the future of the United States”. The railway business is considered a barometer of the domestic economy, because of the volume and variety of products shipped via rail. Buffet himself uses rail carload data as an indicator of the financial health of the country. 

The railroad business cannot rely on global market penetration or new technologies to propel its future success as other firms and industries might. The U.S. rail industry will only prosper if the U. S. economy prospers. Rail carriers haul freight mainly within North America with freight volumes highly correlated to other domestic activity. For the man who many consider to be the smartest investor alive to make a $44 billion investment into a railroad company says a lot.

As you would expect during the recession, freight volumes have been down. Some might mistakenly think this purchase is a way for Buffet to play a near-term turnaround in the economy. Buffet is a notorious buy-and-hold investor with nearly unlimited patience. He doesn’t speculate - he invests. He described the deal as “a huge bet and one that I’m happy to make, but it’s not a bet on next month or next year. We’re going to own it forever.”

Warren Buffet is an optimist and believes that our current problems and future challenges will be overcome as they have been in the past. He believes in the strength and resiliency of our free enterprise system. He could be wrong, but at least he’s put his money on the table. It’s never been a good strategy to bet against America, or Warren Buffet, for that matter.His ‘all in’ bet sends a hopeful message to all Americans.