Charlie Rose Interview With Buffett

[Parsad]

There's a new Charlie Rose interview with Buffett:

 

http://www.charlierose.com/

 

Buffett also said that Burlington Northern was not cheap, and it was an investment for the next 100 years.  Cheers!

 

http://www.bloomberg.com/apps/news?pid=20601087&sid=arwqyNBGLRG8&pos=1

[Munger_Disciple]

Did anyone else have problems watching the Charlie Rose interview with Buffet? It seems to stop after about 6min into the interview.

[Grenville]

I couldn't make it past the 4 minute mark. I am going to try again later tonight or tomorrow.

[oldye]

The deal is absolutely brilliant for Berkshire, Burlington generates about 1 billion dollars in free cashflow per year..if you assume they grow it by by a mere 10% per year in 15 years you end up with a 4 billion dollar cash machine backstopped with 80 billion dollars worth of real estate.  You could just tell from the smirk on his face that this why he gets up in the morning!

 

 

[shalab]

BNI isn't cheap by today's standards. However, I think it's moat is probably bigger than Coke. No one is ever going to put a rail road like BNI in the next one hundred years - it is just not doable today. The article in "value investor's club" puts the yield taking into account tax deductions for railroads at 12%. Given the recession and price paid, even a 10% yield can be quite a deal :- ).

 

http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/3011

 

cheers!

shalab

[prevalou]

what moat if oil prices go down to 10 $ (substitutes, new discoveries, etc.) ?

[shalab]

Well, every substitute/alternate discovery that is needed takes energy to create. Today, this energy is generated through the petro-chemical industry. To produce ethanol, one needs fertilizers which is produced from crude oil.

 

One substitute that is available in large quantities, burns more cleanly than gas and is cheaper is natural gas. Unfortunately, none of the car/truck engines are being retrofitted in the US to burn with natural gas.

 

The last factor here is the emerging markets of India and China. The amount of gasoline consumed world wide is going up, not down despite the drop in the US to 1997 levels.

 

Thus, the price of gas is expected to go up and not down in the next ten-twenty years.

 

 

[scorpioncapital]

The idea that BNI's moat is "bigger" than Coke's is funny. Just look at the market caps, that tells the whole story - $30 billion versus $130 billion.

 

 

[Munger_Disciple]

Charlie Rose web site is really lame. I tried to watch the Buffett interview again and it seems to always stop at the 4min19s mark. It also seems to happen with other video archives (Freeman Dyson interview in Aug 2009 at a different time marker). I tried different browsers with the same result. I live in San Diego and unfortunately our local PBS station does not seem to have a re-run of this interview. Does anyone know how to obtain a transcript? Thx in advance.

[ExpectedValue]

Charlie Rose web site is really lame. I tried to watch the Buffett interview again and it seems to always stop at the 4min19s mark. It also seems to happen with other video archives (Freeman Dyson interview in Aug 2009 at a different time marker). I tried different browsers with the same result. I live in San Diego and unfortunately our local PBS station does not seem to have a re-run of this interview. Does anyone know how to obtain a transcript? Thx in advance.

 

ill have a transcript by monday morning-ish

[maxprogram]

The idea that BNI's moat is "bigger" than Coke's is funny. Just look at the market caps, that tells the whole story - $30 billion versus $130 billion.

 

I think a better way to say it is that Burlington Northern's moat is stronger than Coke's. Coke does have a much bigger franchise.

 

When you look 30+ years out, and attempt to rank which businesses/industries are most likely to still be around, I think BNI would definitely be above Coke on the list. Just as I think Coke would be above Google and Microsoft (even though both have larger franchise values).

[prevalou]

about the idea that it takes much energy to create substitutes. True for ethanol but for solar cells? Once the technology improves, will it take a lot of energy?

About new discoveries: it seems to be a consensus that cheap oil has already being discovered, because we don't find much cheap oil (except maybe in Brazil). But maybe it is the black swan syndrom. The fact that we always see white swans doesn't mean there is no black swan.

 

 

[Munger_Disciple]

ill have a transcript by monday morning-ish

 

Thanks, TariqAli.

[Parsad]

When you look 30+ years out, and attempt to rank which businesses/industries are most likely to still be around, I think BNI would definitely be above Coke on the list. Just as I think Coke would be above Google and Microsoft (even though both have larger franchise values).

 

Sorry Max, I have to disagree here.  While railroads have been around since the early 1800's, BNI itself was formed recently.  Coke has been around since 1886.  That's enough history to probably assume that both moats are at least equal. 

 

I would also argue that Burlington's business is solely dependent on the success of the U.S. over the next 50-100 years.  Whereas Coke's success isn't dependent on any single nation.  If the U.S. stumbles over the next 30 years, that's ok because China or India will be drinking more Coke.  Coke's moat would also be unhindered by new technological advances, nor would profit margins be compromised by other's developing new distribution centres for competitive products. 

 

I believe the only real weakness Coke could be exposed to is if litigious judgments are made against Coke, by consumers who decide that the product could be detrimental to one's health.  I think it is a very remote possibility, but there is always the chance that it could happen over time, not unlike the tobacco industry's demise over time.  Smoking at one time was as acceptable and commonplace as someone eating a Big Mac or drinking a can of Coke today.  Who knows what things will be like 50 years from now? 

 

On another note, I would also like to comment to boardmembers that what is good for Berkshire, isn't necessarily in the best interest of the average small investor, or even small investment firm.  Berkshire makes investments for Berkshire's size and succession planning.  The average investor really has neither concern when buying something for their portfolio.

 

Burlington, like MAE, will suck up excess cash at Berkshire for the next 50-100 years.  That means less cash in the hands of the potential CIO's, who are unlikely to be as good as Buffett...at least over such an extended period of time and with large amounts of capital.  There are much smaller and cheaper targets that we all can look for.  Cheers!

 

 

[Grenville]

Warren Buffett refers to a speech given by Li Ka-shing titled "My Third Son" in the 8 minute web exclusive on the Charlie Rose site. This video actually plays through without any hitches.

 

Here is the text of Li Ka-shing's speech:

http://www.lksf.org/eng/media/speech/20060905.shtml

[twacowfca]

Sanj, why do you say that Burlington will suck up BRK's

cash for the next 50 to 100 years?

[Rabbitisrich]

Parsad, the story of how aspartame came to be approved by the FDA is somewhat sketchy. However, it's such a widely used product that, even if it found to be harmful, there might not be asbestos-level consequences for Coke. It'll be interesting to see whether any industry gets taken down by the Bisphenol-A controversy.

[shalab]

Burlington, like MAE, will suck up excess cash at Berkshire for the next 50-100 years.  That means less cash in the hands of the potential CIO's, who are unlikely to be as good as Buffett...at least over such an extended period of time and with large amounts of capital.  There are much smaller and cheaper targets that we all can look for.  Cheers!

 

Agree that Berkshire optimizes for its size and what is good for a 150B+ company is not good a person holding tens of thousands of dollars.

 

However, the way Berkshire is structured, dont think Burlington will suck Berkshire's cash. The way it is structured at Mid American, Berkshire borrows money using its AAA rating and lends to mid american at one% additional interest. Thus the collapse of Mid American will not mess up Berkshire. I would be surprised if Burlington will be structured any differently simply because it would hurt Berkshire as an entity.

 

cheers!

Shalab

 

[Parsad]

Sanj, why do you say that Burlington will suck up BRK's

cash for the next 50 to 100 years?

 

Sorry, I should rephrase that.  Burlington, like MAE or Netjets, are capital-intensive businesses.  Overtime, they will be able to plow back alot of their income into their own businesses, leaving less cash in the hands of the CIO's. 

 

Many other Berkshire businesses like See's, GEICO, etc, spew off alot of cash into Berkshire's hands.  They can't really plow it back into their operations.  If Berkshire spent that $44B on businesses like that, that would mean billions more flowing into the hands of the eventual CIO's, who aren't going to be as good as Buffett with large amounts of capital.  Cheers!

[scorpioncapital]

Transcript of Interview:

http://www.charlierose.com/download/transcript/10711

 

[shalab]

Sanjeev, you raise a good point. Netjets has been sucking cash and not returning anything in return. I think it is a non berkshire type of business and hopefully Sokol can fix it up for good.

 

While BNI is definitely not like Sees and Geico, I hope it is more like Mid American rather than NetJets. Once berkshire acquires it, I hope its borrowing costs go down. It currently pays 600 million in interest. It should reduce by 50-100 million dollars given the differential between BNI's credit rating and Berkshire's credit rating including Berkshire's added surcharge.

 

BNI pays 500 million in dividends. I think of it as the excess cash thrown out by BNI. Also, BNI has been spending few hundred million dollars every year to buy back stock. There is no need to buy back stock any more. Also, none of these companies are entirely debt free ( e.g: midamerican ), they take on debt to maintain their operations. I see atleast a billion dollars freeing up from lower interest rates, no stock buybacks and no dividends.

 

The extra cash should go to the headquarters unless BNI is planning on buying another railroad :- ).

 

cheers!

Shalab

[dcollon]

Scorpioncapital,

 

Thanks very much for posting the transcript.

 

 

[twacowfca]

Sanj, I strongly disagree with your take on BNI.

BNI is a toll road, an ideal business.  It's routes

are almost entirely across the vast American West

where trucks have the greatest disadvantage competing

with railroads,unlike the East where population

centers are close together and the fuel and labor

cost savings of railroads is largely negated by the

flexibility of trucking.  BNI's pricing power is illustrated

by their ability to pass on fuel price increases without 

having to cut rates when fuel costs decline.  Their forward capex

will be relatively low.  They can lay extra track on existing

right of way at relatively low expense if needed, and

shippers can be required to provide their own cars. 

In short, it's a much better business than almost any

other that is based on hard assets.

 

[twacowfca]

Oh, Sanj, one more thing:  In a few years, when

the real estate cycle turns up, BNI's land holdings

will almost certainly be worth considerably more

than BRK paid for the whole co:  a very nice "problem"

for Warren's successor to have to worry about.  :)

[tooskinneejs]

Here is BNI's annual % return on assets for the last 10 years (2008 is presented first): 6.0, 5.6, 6.1, 5.2, 2.8, 2.9, 3.0, 3.0, 4.1, 4.9.

 

Given that a moat should be a means to an end (the "end" being a high return on invested capital), does it matter much that BNI's network may be impossible to replicate if the network doesn't generate significant % returns on invested capital?  Shouldn't the hard numbers be the proof of a moat's worth?