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Why Buffett bought BNSF and did stock split?

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buffett burger

I can think of a few reasons:

1) He sees value in BNSF;

2) He want to use some cash so that his successor won’t have too much cash to squander (this is legit considering his age, and a lot of times people make mistake when they are rich);

3) Last but most important, financial crisis taught Buffett a lesson: liquidity is very important. GE and GS got his endorsement and got cash by issuing stocks in one day. Buffett could not do that before buying BNSF and the stock split. Now he can. BRK is S&P component, much more widely held. “Get access to capital market” is one reason Goldman went public in 1990s.

I think Buffett only said 1. But I think 2 and 3 are also the factor here. Remember Buffett was against stock split up to this BNSF deal. Although he said publicly splitting Berkshire stock is for small BNSF shareholders, a valid point. Nonetheless I would be astonished that was the only reason to overthrow 40 years belief/rule in one deal.

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Reading Buffett letter to shareholder 2009

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link to 2009 PDF annual shareholder letter here.

Buffett CNBC interview
(part 1 here, following the link from part 1 to get to part 2 to 8 )

Recommend reading by Buffett
Keynes’s *General Theory*, chapter 12

Intelligent Investor Chapter 8 and 20

My Notes

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Peter Peterson on Blackstone, China, deficit and healthcare etc.

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Mr. Peterson has background both in government and private sector: he has been commerce secretary and is co-founder and senior chairman of Blackstone (the private equity group). Very wise guy in my mind.

Charlie Rose interview July 3, 2009 (link)

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WealthTrack Notes

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David Swensen (head of Yale endowment management)
Individual should be responsible to educate themselves if they actively manage their portfolio or just go passive: investing in index fund (this is echo to Buffett, Bogle). There is nothing in between (in other words, he thinks doing something in between can not bring good performance).

David is not a big fan of mutual fund because: 1) Only 15% of mutual fund outperform the market; 2) Survival-ship bias (10,000 out of 30,000 mutual funds fold in 20 years); 3) Even if individual investors luckily find the 15% good mutual fund, many buy “high” and sell “low” on the funds.

Another interesting point David made was we went from an ownership (everyone being shareholder) society to an agent(let someone else to manage asset) society, and now to fiduciary society. The following is an excerpt of his talk on Apr 23 at Youtube. Both his Apr. 23 and July 24 talk are available at wealthtrack web site.

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Exelon NRG Energy saga continues

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(Presentation May 27) NRG Energy at Deutsche Bank Securities Energy & Utilities Conference.

(Noise from OptionMonster May 27) Options prepare for drop in NRG. I am not expert in Options, but I think stock price should affect option (derivative) price, not the other way around (as the NRG options shown in Yahoo Finance). Maybe guys at OptionMonster make more money from writing articles (selling Ads) compared to trading options 😀

(Daily Herald May 26) Analyst: Exelon will need to increase its bid for NRG

(Business Wire May 21) Exelon Receives FERC Approval for Proposed NRG Acquisition. Notice this is one of many regulatory hurdles EXC needs to overcome before the acqusition going through.

(WSJ May 15) Exelon CEO: If NRG Energy Bid Fails, Will Look Elsewhere

Notice earlier this year Exelon won 51% NRG shareholder via. the tender offer (WSJ article).

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Berkshire sold some ConocoPhillips shares in Q1 and April

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(Update) RationalWalk has a much more comprehensive piece on Berkshire Q1 results.

(Original) News from San Jose Mercury News. Quote:

Berkshire says it sold 13.7 million of its 79.9 million shares of ConocoPhillips during the first quarter to generate a loss that can offset past capital gains taxes.

More details from its Q1 earning report (PDF). Again quote:

…Investment losses from other-than-temporary impairments for the first quarter of 2009 predominantly relate to Berkshire’s investment in ConocoPhillips common stock. The market price of ConocoPhillips shares declined sharply over the last half of 2008. In the first quarter of 2009, Berkshire sold approximately 13.7 million shares of ConocoPhillips and sold additional shares in April. Although Berkshire expects the market price for ConocoPhillips shares to increase over time to levels that exceed original cost, Berkshire may sell some additional shares before the price recovers. Sales in 2009 were or may be in anticipation of other investment opportunities, to increase overall liquidity and to carry back realized capital losses to prior years for income tax purposes…

My thoughts
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Random thoughts on Berkshire annual meeting weekend

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(Update 04May09) Buffett CNBC interview. (Monday Becky Quick)

I did not go to the Berkshire annual shareholder meeting, partly because of the recession (cost cutting), partly because I sold the stock recently (note: one does not have to buy stock to get the admission ticket, they sell it at $5 on eBay). There are live blog and twitter on the meeting (6 hours Q&A), such as MarketBeat (WSJ), CNBC BuffettWatch and NY Times Andrew Sokin. But there are no webcast, because Warren and Charlie are old fashioned.

Succession plan
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