Somewhere, sometime, I read a bit of great investing advice. A guy listed ten things to do and not do over your investing life, and number one on the list of things to do was to read Warren Buffet’s shareholder letters. I finally found some time to read this years version, which recaps 2013. You can find them all here.
The letters are always entertaining to me, and I just love the way he uses “plain” English to describe his successes, operations, and failures.
One part really stuck out this year from page 6:
Indeed, who has ever benefited during the past 237 years by betting against America? If you compare our country’s present condition to that existing in 1776, you have to rub your eyes in wonder. And the dynamism embedded in our market economy will continue to work its magic. America’s best days lie ahead.
In the title of America 3.0, it says:
America 3.0: Rebooting American Prosperity in the 21st Century-Why America’s Greatest Days Are Yet to Come
Yes, we will have some short term pain, but I have fully come around to thinking that indeed, we are eventually going to move forward at a rapid and profitable pace. And I won’t be betting against Warren Buffett and Charlie Munger any time soon.
Disclosure: I own Berkshire Hathaway B shares.
Congratulations on making money from one of the largest crony capitalists on the planet:
https://www.opensecrets.org/lobby/clientsum.php?id=D000021757&year=2010
from lobbying for the estate tax to benefit his insurance business to opposing the Keystone pipeline to keep his railroads delivering the oil (at least until the latest rail accident), Mr. Buffet is a quintessential FOO – Friend of Obama. And making good money out of it.
Fiona – you are free to not purchase any of the Berkshire products just as I am free to engage them if I so choose. In other words, if you didn’t invest in anyone that had ties to lobbyists, what are your options?
I should add that the vast majority of the BNSF’s volume is grain and dry freight. They only own 427 tanker cars out of 85,338 total cars according to a quick wiki check. So “delivering the oil” obviously isn’t a priority (at this time). On top of that, BH is making enormous investments in their railways, which are by far the greenest way to get freight from one place to another.
You can’t necessarily assume that a railroad’s business mix is reflected in its owned-car mix, because of (a) cars owned by shippers, and (b) cars interchanged from other railroads. Here is the BNSF business mix data from the most recent 10-K. It appears that Oil is included under the 5 business areas in “Industrial Products,” which does seem to support the conclusion that oil is not a huge piece of BNSF’s mix at the moment.
Consumer Products:
The Consumer Products’ freight business provided approximately 33 percent of freight revenues for the 12 months ended December 31, 2013, and consisted of the following business sectors: Domestic Intermodal (including Truckload/Intermodal Marketing Companies and Expedited Truckload/Less-than-Truckload/Parcel), International Intermodal and Automotive.
Industrial Products:
The Industrial Products’ freight business provided approximately 27 percent of freight revenues for the 12 months ended December 31, 2013, and consisted of the following five business areas: Construction Products, Petroleum Products, Building Products, Chemicals and Plastics Products and Food and Beverages.
Coal:
The transportation of coal contributed approximately 23 percent of freight revenues for the 12 months ended December 31, 2013, with more than 90 percent of all BNSF Railway’s coal tons originating from the Powder River Basin of Wyoming and Montana.
Agricultural Products:
The transportation of Agricultural Products provided approximately 17 percent of freight revenues for the 12 months ended December 31, 2013. These products include wheat, corn, fertilizer, bulk foods, ethanol, soybeans, feeds, oil seeds and meals, barley, oats and rye, oils, flour and mill products, specialty grains, malt and milo.
Thanks for the correction, David.
Coal is evil. Ask Obama. Buffett should tell BNSF to stop hauling it. Or he might not get invited to the WH.
I was just discussing this with a friend up in N Minnesota yesterday.
He said they’re expanding tar sands pipelines at a breakneck pace (his words)
It’s called the Alberta Clipper and it will run down to Chicago.
I can’t blame Buffett for playing the game as it is. The criminal politicians who create the friction in our economic system are the culprits. I remember when Microsoft decided they had to have a lobbying shop in DC. They were being harassed by the feds and, correctly, decided they had to play the game. “Nice little software company you have there. It would be a shame if something happened to it.”
It starts at the local level. When my father owned a tavern in the south side of Chicago, the local police “bagman” would stop by every week to collect for the local chief. If they were paid, nobody ever got a ticket for parking too long at a meter. If not, the rules would be enforced with a vengeance. It was a cost of business. Now, we have a worse situation as incandescent light bulbs have gone away because GE and Sylvania wanted more revenue and got Congress to ban the cheap incandescent bulbs. Now, the replacement bulbs are far more expensive and, likely as not, made in China. GE closed their last light bulb plant in 2010.
The manufacture of CFLs, however, is labor-intensive and too expensive to be done at U.S. wage rates.
GE could retrofit its Winchester plant to produce CFLs, but GE CFLs would be 50 percent more expensive than bulbs made in China with the benefit of cheap labor. Realizing it could not compete with such a cost disadvantage, GE is closing down its Winchester factory.
Two hundred workers at the Winchester plant are being put out to pasture during the worst economic conditions since the Great Depression. Many others preceded them while CFLs gained increasing market share under the looming incandescent light bulb ban.
CFLs are, of course, toxic if broken. Now they are being phased out by LEDs, which are even more expensive.
Grurray – I would be surprised if that pipeline actually ended up going to Chicago. Ridiculous business climate.
Warren Buffett recently came out in favor of the Keystone pipeline. BNSF also happens to haul a lot of coal, but somehow that never gets mentioned in the misguided Buffett attacks. The primary motive for Buffett’s political view is not some profit motive (the vast majority of his fortune is already pledged to the Bill and Melinda Gates Foundation), but that he believes in wealth redistribution. Those on the political right such as moi say that’s nice, go for it, but have you noticed the actual results of your efforts? Do you not understand that achieving equality of outcome, as opposed to equality of opportunity, is impossible? And why are you pointing that gun at my head and forcing me to pay for your dysfunctional policies?
But back to the main topic, here’s another quote: “No one has ever made a shekel betting against the Roman Empire!” – Julius Caesar. Okay, I made that up. But since Charlie Munger was mentioned, let me recount what the less known, less wealthy, but even more brilliant half of the Berkshire “partnership” said about future U.S. prospects, roughly a decade ago – that the U.S. was “.. at or near the peak of a great civilization.” Math doesn’t lie, and I don’t see how the U.S. can change from being, as Canadian Mark Steyn has so aptly put it, “The Republic of Brokeistan”. Throw in the entitlement culture, the fact that so many successful capitalists such as Buffett, Gates, the Left Coast tech crowd, etc., have embraced the neo-socialist/liberal fascist Democrats, the apparent reality that maybe half of the Republican Party is actually “Democrat Lite”, and I’m betting with Charlie. Look at California, that’s where I see the U.S. headed, and that’s absent some more turbulent result. I hope I’m wrong.
I have to laugh – there is some guy advertising his “seminar” on the radio on how to get rich in the stock market – and saying “the days of buy and hold are over”
Hope he gave Buffet this sage advice.
(as an aside I often wonder if all these stock & real estate huksters trying to sell their stuff have to resort to radio – if what they are doing is so profitable why aren’t they doing that instead of “selling their stuff on the radio”)
BTW Dan – my sister owns a little of that too and she went to an annual meeting in – where else – Omaha.
Said the best part of her visit was having the lunch afterward a restaurant – an announcer said that “Mr Buffett & Mr Gates will be coming in for lunch and please don’t ask for their autographs”
Few minutes later they come in with bodyguards and sit at the table next to my sister.
Owen – I am with you, but like the authors of America 3.0, and Buffett/Munger, I feel that there will be some short term pain (10-15 years?), but a ton of long term gain.
Bill – I have often thought about going to that meeting in Omaha. From what I have heard, it is fun and you can score some good deals on merchandise that week being hawked by BH owned vendors – all you have to show them is your statement that proves you are a shareholder.
“Disclosure: I own Berkshire Hathaway B shares.”
Congratulations on lagging the S&P 500 for five years now.
http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1396036800000&chddm=484058&chls=IntervalBasedLine&cmpto=INDEXSP:.INX&cmptdms=0&q=NYSE:BRK.B&ntsp=1&ei=6rY1U7CiGcaUiQKALg
Whenever Buffet comes up with is poltitical tripe about estate, and/or other taxes not being high enough, I can’t help but think of all the swaps he’s written referencing treasuries. What would happen to Berkshire if there ever was a “credit event”.
And his tag team on Bank Of America two years ago with the Obama administration basically forcing BAC to sell preferred shares to Berkshire at an absurdly cheap price would make Putin proud.
**Disclosure, I am long Bank Of America shares.
“Congratulations on lagging the S&P 500 for five years now.” I haven’t owned the shares that long, but Buffett speaks on this in his letter if you are interested.
My pal in the Great White North gave me some clarification on the pipeline situation
http://en.wikipedia.org/wiki/Enbridge_Pipeline_System
Enbridge has several lines already running through Minnesota from Canada, some of which are 50 years old. Unlike Keystone, they already operate under a Presidential permit, so no State Dept approval is necessary for expansion. The proposal is to double current capacity
They also want to connect to the Bakken fields in N Dakota, which wouldn’t require D.C. approval either.
In Superior, WI the oil switches to the Lakehead System which runs down to the Illinois and Indiana refineries or down to Oklahoma and beyond.
This would be a roundabout way to bypass the whole Keystone issue.