Warren Buffett Thinks This is The Most Important Business in Our Economy

Warren Buffett recently revealed one business is important not only to Berkshire Hathaway, but in fact every American.

Apr 20, 2014 at 1:41PM


In his most recent letter to the shareholders of Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B) Warren Buffett said one single business was critically important to the entire U.S. economy. And the good news is: he owns it outright.

His remarkable remarks
Berkshire Hathaway encompasses a variety of businesses, from energy, finance, insurance, and manufacturing firms to retail stores as well. Yet one of its biggest businesses is railroad Burlington Northern Santa Fe (BNSF), and you won't believe the praise Buffett piled on it.

In the most recent letter to shareholders Buffett said (emphasis added): 

BNSF carries about 15% (measured by ton-miles) of all inter-city freight, whether it is transported by truck, rail, water, air, or pipeline. Indeed, we move more ton-miles of goods than anyone else, a fact establishing BNSF as the most important artery in our economy's circulatory system. Its hold on the number-one position strengthened in 2013.

While Buffett is known for his love of businesses Berkshire Hathaway owns, his remarks display how much he values the railroad. And as it turns out, shareholders and all Americans should too.

Buffett By Coca Cola

Image Source: Coca-Cola

The benefit to Buffett and Berkshire Hathaway shareholders
BSNF was purchased by Buffett in November 2009, valuing the railroad at approximately $44 billion. At the time Buffet remarked this was "a huge bet," on not only the company, its leadership, and the industry, but most importantly, "it's an all-in wager on the economic future of the United States." 

Buffett has been known to make enormous acquisitions, but the one of BNSF was remarkable because it was made in the midst of the Great Recession when many questioned the future of the American economy. Yet Buffett understood the troubles would be temporary, and made the acquisition to provide another business to Berkshire Hathaway with incredible size -- it operates across 51,000 miles encompassing 28 states and two Canadian provinces -- and competitive advantages. As a result, its shareholders have seen the rewards.

As shown in the chart below, since 2011 -- the first full year of after the acquisition was complete -- BSNF has seen its annual earnings jump by nearly 30%:

Source: Company Investor Relations

One of the reasons for this gain in earnings is strong revenue growth -- up 13% since 2011-- but the railroad has also done a tremendous job at adding to its profitability. A simple calculation of the profit margin -- earnings divided by revenue -- reveals it has improved from 15.2% in 2011 to 17.2% in 2013.

While two percentage points don't sound like much, on the $22 billion in revenue in 2013, that improvement meant an additional $450 million in earnings.

With all that in mind it's no wonder Buffett says BNSF is a member of the "sainted group," of Berkshire Hathaway companies known as The "Powerhouse Five."

Yet the reality is BNSF benefits not only Buffett and shareholders, but all Americans.

Warren Buffett Insider Monkey

Image Source: www.insidermonkey.com

The benefit to Americans
Buffett notes, "BNSF, like all railroads, also moves its cargo in an extraordinarily fuel-efficient and environmentally friendly way, carrying a ton of freight about 500 miles on a single gallon of diesel fuel," which is four times more efficient than trucks.

Knowing half of its revenue was from the transportation of consumer and agricultural products, the lower costs offered by BNSF for manufacturers to transport goods should lead to lower costs for consumers. Many have suggested the infrastructure of America is in dire need of change but Buffett suggests such a thought "in no way applies to BNSF or railroads generally."

The Foolish bottom line
Many believe Buffett is simply good at picking which stocks to trade. But the reality is, he's an expert investor in businesses, not stocks. And whether he owns them outright or makes investments in their publicly traded shares, he always understands he is buying into the company itself.

And while it's clear BNSF has benefited both Buffett and Berkshire investors, the truth is, it benefits all Americans as well.

The greatest thing Warren Buffett ever said
Through investments in BNSF and countless other firms, Warren Buffett has made billions. Yet he's happy to share how and why he made the moves he did, and he wants you to be able to invest like him. Through the years, Buffett has offered up investing tips to shareholders of Berkshire Hathaway. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.

Patrick Morris owns shares of Berkshire Hathaway. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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