What I Learned, Part VI: No Brilliant Ideas, but a Dig at Kraft

The second-to-last question of the day is asked, and it’s about Burlington Northern.

“Are you also purchasing rights of ways and do they have other purposes?” a shareholder wants to know.

He is, no doubt, wondering whether the “Oracle” has divined an additional use for the rights-of-way on which the Burlington Northern track sits—one that takes such clever advantage of those long, uninterrupted stretches of railway beds that, years from now, other railroad operators will smack their foreheads and mutter “How did we miss that!”

Buffett knows exactly where the question is going, for there has been speculation that he has his eye on using those rights-of-way to expand his electrical distribution operations in some sort of grand scheme to both help fortify the tired, aging national grid while likewise making buckets of money for Berkshire.

So he gets right to the heart of the matter:

“ I think Phil Anschutz found a way to do this in the case of his railroad, but no, Burlington Northern does not have a lot of excess land, and I don’t have any brilliant ideas to use the right of way, the rolling stock, the tonnage, the bridges…”

Buffett knows his history: Phillip Anschutz was the genius, Kansas-born, land/farming/oil magnate who began installing digital fiber-optic cable along the tracks of the Southern Pacific Railroad in the 1990s, creating Qwest Communications out of thin air—or, rather, thick dirt.

Anschutz was copying the model created by Williams Companies, a pipeline operator that had been stringing decommissioned oil pipelines with fiber-optic cable since 1985.

Buffett, however, will not be copying Williams or Anschutz: he merely wants the railroad.

Having made this clear, he winds up the subject with a dig at Kraft—the food company whose shares Berkshire owns, which is buying Cadbury for what is, in Buffett’s mind, an offensively high price using offensively low priced stock:

“Unlike Kraft, we do NOT expect dramatic synergies.”

This gets a laugh from the sympathetic crowd, and Buffett continues by accentuating the positives, and also displaying more of his command of financial history—the kind of command he will put to greater effect at the annual shareholder meeting when he and Charlie Munger will answer these types of questions for more than five hours:

“Matt Rose does a wonderful job running it [Burlington Northern]… I do not see its utility elsewhere. The Burlington had lots of oil, real estate [years ago], and they spun those things off. The railroads have nothing like the surplus of assets they had 20-30 years ago. I looked at a map of the Union Pacific the other day, when they were chartered in the ‘60s I think they had 10% of the land in Nebraska.”

By “’60s” Buffett is, of course, referring to the 1860’s, but I wonder if the youthful side of today’s crowd makes that connection.

The final question of the day—at least the last question Buffett will answer—is about his partner, represented today by a color cut-out of a youthful Charlie Munger…“What is Charlie’s view on the split?”Buffett says,

“We consult on anything important—like this. We’re paying a full price, and paying part of the price in stock is unpleasant.”

When a shareholder from La Jolla tries to sneak in a question on Buffett’s view on the price of oil, the Oracle seizes the chance to cut things off:

“We should really limit this,” he says, concluding the question-and-answer session. “Charlie, any last words?” he asks his cardboard partner.

Instead of Munger’s voice, we hear him snoring.

This draws laughter and makes for the sort of humorous coda with which Buffett likes to end his public appearances. He stands and shareholders start moving to the front of the concert hall, their cameras ready.

As the cameras start flashing, Buffett obliges. He stands next to the image of Charlie and makes a “V” with his fingers behind Munger’s head.

The flashes go off.

Then Buffett waves and walks quickly offstage.

To be concluded…

Jeff Matthews
I Am Not Making This Up

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