Idle Chatter: Warren Buffett, BNSF, Apple, The iCloud, And All That Jazz -- August 16,2016

From February 6, 2014:

About the same time, literally, about the very same time the Legacy Fund was being put together, this news story from The Los Angeles Times:

Billionaire investor Warren Buffett's $34-billion acquisition of railroad giant Burlington Northern Santa Fe Corp. is the biggest bet yet on a U.S. economic recovery, one that could resonate from the international sea lanes to the railroads crisscrossing the country.

Burlington Northern is the nation's largest rail transporter of coal and grain and provides a vital link for consumer goods from Asia to the Midwest, many of them flowing through the ports of Long Beach and Los Angeles.

"It's an all-in wager on the economic future of the United States," Buffett said in a statement announcing the deal Tuesday. "I love these bets."

I have since read that "the all-in wager" was not an exaggeration. Apparently, the purchase of the Burlington Northern could have broken Berkshire Hathaway.

I remember that interview: 

"It's an all-in wager on the economic future of the United States," Buffett said in a statement announcing the deal Tuesday. "I love these bets."

I was reminded of that story, that interview, when I happened to note that Union Pacific Railroad announced today an increase in its dividend, payable in February. I didn't think much about it at the time; I just posted it. [It may be just me, but dividend announcements seem to be coming more frequently in energy-related companies lately. I'm thinking of Marathon, PSX, Apache, and now UNP, which I think of an energy-related company.]

So, how did Warren's "all-in wager" turn out?

From Bloomberg just a few months later, November 10, 2014:

Days after Warren Buffett announced his $26.5 billion buyout of railroad BNSF, he insisted that he’d paid a steep price to own a business that would benefit his company, Berkshire Hathaway Inc., over the next century.

“You don’t get bargains on things like that,” he said in a November 2009 interview with Charlie Rose that aired on PBS. “It’s not cheap.”

Five years later, that assessment rings a bit hollow. Buoyed by an onshore oil boom, BNSF has become a cash machine for Buffett. The railroad had sent more than $15 billion in dividends to Berkshire through September 30, 2014, according to quarterly regulatory filings, the latest of which was released last week.

More stunning: The business is on pace to return all the cash Buffett spent taking it private by the end of this year.

Annual revenue at the railroad has risen 57 percent, and earnings more than doubled to $3.8 billion since Buffett bought it. Sales have climbed even as BNSF faced increased public scrutiny over service delays and safety.

“He stole it,” said Jeff Matthews, a Berkshire shareholder and author of books about the company. “He’s got to feel really good that he bought it when he did, because it’s a wonderful asset, and it’s done nothing but get more valuable in the time that he’s owned it.”

The railroad’s profit continued its climb in the third quarter as revenue from agricultural and industrial shipments, including oil, rose. The business accounted for more than a fifth of Omaha, Nebraska-based Berkshire’s net income in the period, according to a November 7, 2014, regulatory filing.

Buffett is "fun to watch." He's unpredictable. For someone who says he doesn't understand technology and who says he tends to stay away from technology companies, recently we learn that he has increased his holdings in Apple. Significantly.

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Idle Chatter

The preceding all came about because of a sidebar e-mail conversation I've been having with an investor who is a whole lot smarter than I am. I told him that I am shifting my investment strategy a bit. That led to a discussion on Warren Buffett and NOV.

My reply to the reader's note to me:

Yes, but again, I think there are too many oil service companies that are great candidates -- with my luck I'd start investing in Weatherford, and BRK would buy NOV or vice versa. That's true in other sectors as well, but there are so many oil service companies. I could even see him buying BHI after it got so beat down after failed merger.

And with his interest in pipelines, WMB seems an incredibly interesting target.

• NOV: $13 billion
• Weatherford: $5 billion
• BHI: $22 billion
• WMB: $20 billion

BNSF cost Buffett $26 billion (or $34 billion -- see above) and at the time, I believe he said that was almost "betting the farm" on one company. I think he said it was a bigger deal than he felt comfortable with or something along that line.

So, BHI and WMB would be similar risks with less reward than BNSF.

NOV seems a bit less expensive in comparison and would still be big enough to get his name on the front page of business sections of newspapers. Which he likes.

Weatherford: if under consideration, he would have his secretary make the decision.

I did this quickly so hopefully the market caps are correct. But when I look at those four and look at Buffett's energy holdings, and recent WMB history, WMB looks very, very enticing. That TRANSCO pipeline from Texas to the Northeast or vice versa, alone, must get Buffett excited.

This is, of course, not ready for prime time. It is simply idle chatter, throwing some stuff around while drinking virtual coffee at the iCloud Cafe, 100 Heavenly Way, PSR J1302-6350.

Note: this is not an investment site. Do not make any investment, financial, travel, job, or relationship changes or decisions based on what you read here. Do not put down any money with Virgin or SpaceX for a trip to the iCloud Cafe. If any of this stuff is important to you, and I doubt that it is, go to the source.