Rush Loving: What Kind of Owner Will Warren Buffett Be?

Posted by Matt Van Hattem
on Thursday, January 7, 2010

By Rush Loving


A lot of people at Burlington Northern Santa Fe are probably wondering what Warren Buffett will do to their company once Berkshire Hathaway completes its purchase in the next few months..

Everyone in the railroad industry knows all about predators who come seeking quick profits. They date back to the days of Jim Fisk and Jay Gould. Many people remember those leveraged buy-out artists from Wall Street who were knocking on corporate doors in the 1980s, and more lately some hedge funds that have been nosing around the railroads, looking for easy pickings.

Those investors can micromanage everything or at the least they will constantly pressure CEOs to defer maintenance and lay off thousands so dividends and stock prices can be jacked up. Investors like that can turn their railroads into shells that are overleveraged, suffering from deferred maintenance and desperately in need of modernization. Warren Buffett and his company, Berkshire Hathaway, don’t work that way.

Buffett doesn’t tell his managers how to run their businesses. He lets them decide whom they want working for them and how much to pay them. In fact he’s known for sitting back and leaving the daily decisions to them. “The smaller capital expenditures, or even fairly large ones at the subsidiaries, they just do them themselves. They don't need me, because if some guy comes in to me and talks about something in the yarn plant or something in Georgia, what the hell do I know about it?” he told a group of students at the Wharton School a couple of years ago.

And he doesn’t milk his companies for quick dividends. He’s known for nurturing his investments, making them grow so they will deliver fruitful dividends in future decades.  That’s what investing is supposed to be all about. Unfortunately a lot of Americans forgot that principal 20 or 30 years ago. Everything from policy-making by government leaders to investment decisions by many fund managers are geared to the immediate rather than the future.

Fortunately for Burlington Northern Santa Fe, Warren Buffett is different. Buffett invests for the long haul. “Our favorite holding period is forever. If a business does well, the stock eventually follows,” Buffett once said.

Berkshire Hathaway is in staple industries At last count, eleven were insurance companies, including the giant property and casualty firm, GEICO. Other holdings  include energy companies like PacifiCorp. and Northern Natural Gas, a chain of 230 jewelry stores, Dairy Queen—which dispenses custard all across the country—and Benjamin Moore, the venerable manufacturer of paint.

BNSF is not Buffett’s first venture into the railroad business. Berkshire already owns Union Tank and Procor, North America’s largest leasers of rail tank cars.

BNSF’s roots go back to the mid-1800s, and for a Berkshire Hathaway holding that’s not so uncommon. McLane Co., one of the country’s major food distributors, is a century old. Brown Shoe, a respected maker of footwear goes back to 1878.

All Buffett’s companies are sitting atop the pulse of the American economy, and all are long-term earners.
As Buffett has pointed out, Burlington Northern Santa Fe is not going to bring him billions overnight. Rail earnings and traffic grow slowly, but steady—because railroads, too, grow as the nation’s economy flourishes. As a long-term investor, Buffett could not have found a better industry in which to practice his strategy.

When I was writing The Men Who Loved Trains I found that the best managers were people who loved their jobs and their companies. Buffett loves his companies, even viewing them as parts of a great masterpiece that he’s painting.

And he invests by the same standard.  His decision whether to buy or not hangs on whether the men and women who run that company view their jobs the same way he does. As he puts it, “When I buy a business… the biggest question I ask myself if I decide it's a good business—is ‘Do they love the money, or do they love the business?’ Now, if they love the business, we can do business. If they love the money, we can't.”

As he said in a recent note, “Count me as another man who loves trains.” That makes Warren Buffett the kind of shareowner every railroad needs.

See Rush Loving Jr.’s plan for Amtrak in the March 2009 issue of Trains. A former associate editor of Fortune magazine, he served as chief spokesman for the Office of Management and Budget in the Carter White House and has been a consultant to numerous transportation companies.



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