BNSF purchase follows Buffett's tried-and-true formula

Nov 04, 2009 (Fort Worth Star-Telegram - McClatchy-Tribune Information Services via COMTEX) -- BNI | Quote | Chart | News | PowerRating -- Having purchased Burlington Northern Santa Fe Corp., Warren Buffett described the acquisition as an "all-in wager on the economic future of the United States."

But that's nothing new. That's precisely the kind of wager that Buffett, the second-richest man in the world, has been making for decades.

The 50-plus companies in which his Berkshire Hathaway holds a stake are involved in numerous facets of the U.S. economy. They sell insurance, jewelry, furniture, paint, shoes, boots, bricks, manufactured homes, newspapers, candies, underwear, sewage pumps, encyclopedias and carpet cleaners, to name a few. Others offer business and financial services. They bear names such as Geico, Benjamin Moore, Fruit of the Loom and Justin.

By buying a giant railroad with a solid track record and respected management, Buffett and Berkshire Hathaway are "without a doubt" following the same formula they long have pursued, said William Cron, associate dean for graduate programs and research in the M.J. Neeley School of Business at Texas Christian University.

The plain-spoken Buffett has made crystal clear what he inevitably seeks in acquiring a business: a quality company, at an attractive price.

"The primary basis on which Warren Buffett usually buys a company is...its management team, especially top management," Cron said. "He is essentially a value buyer, meaning that he believes the company is undervalued by the market."

At a 1987 Berkshire Hathaway shareholders meeting in Omaha, Neb., attended by a Star-Telegram reporter, Buffett quipped, "Ideally, we like to buy something that costs a penny, sells for a dollar and is habit-forming."

Another tenet of Buffett "is that he has to understand the business fairly well, certainly with respect to the future," Cron said.

For that reason, "you're not going to find high-tech" companies among Berkshire Hathaway investments, Cron said.

Buffett, 79, isn't afraid of appearing old-fashioned. He long has preferred companies that make basic products with a market demand that lasts decade after decade. Hence, Berkshire's 2000 purchase of Fort Worth-based Justin Industries, a maker of boots (Justin) and bricks (Acme) that had gotten short shrift from Wall Street analysts.

Buying Burlington Northern Santa Fe "sounded just like him," Cron said.

Buffett said he believes that railroads, with low fuel costs compared with trucking, have a solid future, especially if energy prices soar again. In buying a company, Buffett "always has to have a level of certainty about the future," Cron said.

Buffett and Berkshire Hathaway, like most U.S. investors, took a huge hit as a result of the stock market plunge that began in fall 2007.

Buffett saw about $25 billion of his personal wealth vaporize, leaving him with $37 billion in March. He thus relinquished the title of world's richest man to Microsoft Chairman Bill Gates, according to Forbes magazine's annual calculations.

Berkshire Hathaway shareholders love Buffett not only for his stellar investment skills but also his straightforwardness, lack of pretense and friendly demeanor.

Unsurprisingly, Cron said, Buffett likes the unpretentious Fort Worth, where he recently met with BNSF CEO Matthew Rose to help put together the railroad deal. Cron said Buffett graciously agrees to meet, talk and dine with about 25 TCU MBA students each year in Omaha.

Afterwards, the students "take pictures with him," Cron said.

After all, he's just Warren Buffett, whom a longtime friend once described as "a hamburger and Coke man."

JACK Z. SMITH, 817-390-7724

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