Berkshirebuffettandbeyond.com Website Review

This deal changed Berkshire. Suddenly wholly-owned operating businesses were REALLY important. Back in 2009, some said Buffett had lost it. The old guy had gone crazy. We are used to that at this point, as it has been a common theme for the last few years. Apple’s stock decline and Berkshire’s mas*ive position is bringing a ton of these comments back to stage. Well, Buffett is probably laughing at these guys back in Omaha. In November 2009, many were looking for answers. BNSF was not the typical Buffett business. Not to pick on Bruce Greenwald, but he was one of the critics at the time. Here are his thoughts: “It’s a crazy deal. It’s an insane deal. We looked at Burlington Northern at $75 and I’ll give you the exact calculation we did. You don’t have a high earnings return. They are paying 18 times earnings, but it’s really much worse than that. They report maintenance cap-ex very carefully. They report depreciation and amortization, and they report only about 70% of the maintenance These are perfectly rational comments from a respected professor. It is interesting to look at what attracted Buffett to BNSF. Also, with the benefit of hindsight, why Buffett was right and his detractors wrong. One very important fact of this transaction, was his level of conviction. In November 2009, there were a ton of cheap opportunities. Buffett picked BNSF, and paid a 30% premium to gain full ownership. Also, 40% of the total consideration was paid with arguably de*ply undervalued BRK shares. So, safe to say he really wanted BNSF. The $34bn paid for BNSF, represented almost 25% of Berkshire’s equity! It was a huge bet, with significant repercussions. At the time, Buffett said it was an all-in wager on the economic future of the US. That is fine, but we know he was looking at other details that made BNSF a great value. Even at prices considered high by many experts. Ok, so 10 years (a bit less actually) have pas*ed. It might be time to look at the results so far…