Many financial experts believe that the performance of railroads, truckers and other transportation companies is a good leading indicator of how the economy and broader market will do. However, transportation stocks have also experienced a bigger slip from their highs in recent weeks than the Dow industrials. So if Buffett is calling a bottom for this sector, it might be the case that he's making the same call for the overall U.S. economy.Right, or it might not. Value investing, by definition, is more of a long-term play. So even if the U.S. economy doesn't hit the bottom for another six months, or even a year, the investment could still make sense in the long run. An industry like rail freight isn't likely to get a whole lot worse, even if the economy continues to stumble for several months into the future. Buffett's rationale might have been simpler. He likely believed that he could get the company for a relatively good price and that it would be worth much more in several years -- not months. While he may believe we're at a bottom, he might be agnostic on the question. Even if we aren't at the very bottom, stock price leads recovery. So the firm's value might not decrease much further, even if the economy doesn't improve for some time. As for lauding him in making a bet on the future of the U.S., so what? Is there anyone out there with half a brain who really doesn't think the U.S. will recover from the Great Recession? Anyone who owns any stock of American corporations -- which includes hundreds of millions of people -- believes the U.S. will improve too. And it's a safe bet. Even though the U.S. has undergone a significant and serious downturn, it's still a very rich country very focused on business. Developing nations might have higher growth going forward compared to the U.S., but that doesn't mean that the U.S. won't also grow again, albeit at a slower rate.
This article available online at:
http://www.theatlantic.com/business/archive/2009/11/overanalyzing-buffetts-burlington-northern-purchase/29536/
