Warren Buffett Drops Jaws With Biggest Buy Ever

Why the Omaha Oracle just spent $34 billion on a rail company

When value-investing tycoon Warren Buffett says he believes in America's future, it means something.  One year ago, at the peak of the crisis he urged his fellow citizens to "Buy American." On Tuesday he put his considerable money where his proverbial mouth is with the biggest purchase in his company Berkshire Hathaway's history--a $34 billion investment in railroad giant Burlington Northern Santa Fe. Buffett described the gamble as an "all-in wager on the economic future of the United States."

Why? Some pundits are taking him at his word. Buffett pores over rail shipping figures religiously, which he interprets as signs of American health. Others immediately guessed that the billionaire is betting big that a green-friendly government will invest in railroad infrastructure. (Buffett has praised and tweaked Obama's response to calamity, and already profited from government policies with his holdings in Goldman Sachs.) Here are the best responses:

• He's Always Bought American, stock analyst Steve Schaefer of Forbes reminds his readers. "For the second-richest man in America, the Burlington Northern buy is just the latest investment in a high-profile American company. Buffett poured billions into preferred shares of General Electric and Goldman Sachs in late-2008 -- bets that looked questionable as the market continued to slide, but have paid off in a big way."

• A So-So Deal to Reassure Shareholders, says Andrew Bary at Barron's. "But some Berkshire investors might be pleased that Berkshire deployed a sizable amount of capital in the Burlington transaction, thus reducing any pressure on Buffett's ultimate successor to do to so. "Investors usually applaud when Buffett does anything big," one investor observes...Berkshire probably didn't have a lot of choice. This is the largest deal that Berkshire has done. Buffett might not have been comfortable with an all-cash purchase, even if Burlington would have accepted it.

• Could Stir Monopoly Rumblings, warns Chris Kaufman at Reuters. "Buffett also owns stakes in other railroads, so it will be interesting to see if his move stirs any antitrust comments from Washington." Kaufman then notes that the Omaha investor's pick has a distinctly middle-America ring. "Idiomatically, there is something profoundly rural in the Americana of Buffett's latest bet; much more so than Berkshire Hathaway's mainstay insurance business."

• Textbook Example of Buying Low, writes stock analyst Matt Phillips at the Wall Street Journal. "It seems like today's announcement that Warren Buffett's Berkshire Hathaway is buying Burlington Northern Santa Fe is a text book example of his value-based strategy in action...Given Buffett's bet on a turnaround in the real economy -- or at least the part of the economy that involves actually making or digging stuff out of the ground and shipping it -- it's not surprising to see the Dow Transports today up more than 4% after the open as the broader indexes languish in the red."

• Betting That Obama Will Invest in Rail, says Joe Wiesenthal at Business Insider. "Basically, Warren Buffett
  is betting on lots more government spending, particularly with respect to infrastructure, and specifically he hopes a lot will be allocated to rail. Obama is known to be rail friendly, and the first stimulus was expected to be highly infrastructure-based, but it wasn't. Buffett -- who has the ear of the President -- is guessing, safely, that we haven't seen the end of that dream, that Obama will open up the government's coffers for a major upgrade of the rail system. If we begin taxing carbon, thus making it more expensive to ship goods by truck, that's another plus."

• Believe Buffett--Railroad Success Indicates U.S. Success, argues Douglas A. McIntyre at Daily Finance. "That is one heck of a bet. And it gives every indication that, no matter what Buffett says on TV or in press interviews, he believes the U.S. economy is about to roar back. Large railroads transport everything from cars to coal to steel and widgets. They are a nearly perfect proxy for the overall economic health of the country."