I am quick to point out what I consider the inherent inequities in a financial system that gives investment houses like Goldman Sachs
More on that point in a moment. First, let's absorb what is likely the final earnings report from railroad operator Burlington Northern Santa Fe
I will not for a moment question the wisdom behind Buffett's move to bring Burlington Northern into Berkshire Hathaway's
But as the Burlington deal makes clear, buying shares can be a whole lot cheaper than buying companies. Berkshire's bid for Burlington placed a 30% premium over the pre-bid share price of the railroad, and the boldly bullish move lit a candle under the shares of competitors that is only just now beginning to flicker. We'll call this the Buffett effect, and as the effect wears off, I think Fools will have a chance to outperform the value master.
One year ago, I encouraged Fools to remain patient for a more favorable entry price than Warren Buffet had achieved with earlier share purchases. Soon afterward, Burlington shares proceeded to decline more than 20% before striking bottom near $50 per share. Of course, assuming the deal wins approval as anticipated, Burlington shares will stay put from here forward. However, the remainder of the sector remains subject to the whims and vagaries of a nervous equity market, not to mention a railroad industry still plagued by troubling freight metrics (including CSX's 23% decline in fourth-quarter coal volumes).
Burlington's revenue fell across every freight category in the fourth quarter, and overall volumes dropped 12.3% from the prior-year period. Every major railroad operator has shown remarkable profitability in the face of these daunting economic conditions. But as persistent sluggishness in freight demand erodes the Buffett effect into a potential dip in the sector's share prices, I believe that Fools may be able to make their own wager on eventual U.S. recovery ... at a significant discount to the price that Buffett paid. I have been particularly impressed by the performance of Canadian National Railway