Buffett adds rails to his investing 'masterpiece'

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Warren Buffett's decision to buy Burlington Northern Santa Fe in a deal valuing the railroad at $34 billion is “classic Buffett,” one analyst said. “A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful,” Buffett wrote in a September 2008 New York Times opinion column.AP

OMAHA, Neb. — Billionaire Warren Buffett likes to compare his company to a masterpiece that he's been painting for nearly five decades, and the deal he announced Tuesday will permanently alter the color of Berkshire Hathaway Inc.'s portrait.

The 79-year-old investor plans to add a brilliant orange section to the painting for the brightly colored locomotives of Burlington Northern Santa Fe Corp. that Berkshire will acquire for $34 billion in cash and stock. It will be the biggest deal yet in a career of big deals.

Buffett described it as an "all-in wager on the economic future of the United States," but it's also transformative for his Omaha-based company. It will make freight railroads Berkshire's third-largest industry after insurance and utilities.

"I think it's classic Buffett," said Andy Kilpatrick, the stockbroker-author who wrote "Of Permanent Value: The Story of Warren Buffett."

Buffet's Berkshire prefers to buy companies instead of just investing in stocks, and Buffett has simple standards for what he looks for in an investment: easy-to-understand large companies with a strong competitive advantage that generate cash and above-average returns on capital.

Just a few weeks into the stock market collapse that began in September 2008, Buffett wrote an opinion column for The New York Times headlined "Buy American. I am." The column encouraged investors to buy U.S. stocks, as he was doing with his personal investments outside of Berkshire.

"A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful," he wrote, repeating an axiom he's used for years to sum up his investing philosophy.

Throughout the nation's economic struggles of the past two years, Buffett and Berkshire have been busy making deals, but few of those were outright acquisitions. Recent big transactions include investing $6.5 billion in equities related to Mars Inc.'s acquisition of Wm. Wrigley Jr. Co., $5 billion in preferred shares of Goldman Sachs Group Inc., $3 billion in General Electric Co., and $2.6 billion in Swiss Reinsurance Co.

Those financing deals have given Berkshire favorable terms, substantial stakes of at least 10 percent and in some cases, warrants to buy stock. As a result the company has collected millions in interest.

Last year, Berkshire failed in its attempt to buy Constellation Energy Group Inc. But even failure was profitable because of the breakup terms.

Berkshire's utility division MidAmerican Energy Holdings received 20 million Constellation shares and $593 million cash last year after Baltimore-based Constellation rejected MidAmerican's $4.7 billion takeover bid in favor of a deal with Electricite de France SA. MidAmerican has since sold the Constellation stock.

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