Friday, December 4, 2009

Letter to the Editor – Buffett and Burlington Northern‏

To the Editor:

I read with some amusement professor Greenwald’s discussion of Berkshire Hathaway’s purchase of Burlington Northern (BNI), I could not disagree with his analysis more. One of my Native American friends says that one must be careful not to view things with “old eyes” and I fear that is what is happening to the professor’s view of Burlington Northern.

When I first began to look at railroads in the 1980’s, they were the very epitome of capital-intensive, labor-intensive companies consistently earning less than their cost of capital and that was during a period when they all had millions of acres low cost land holdings with attached mineral rights. At that time, the one true measure of a railroad’s operating success, its operating ratio, was rarely below 90%. Union work rules were killing them.

Since that time, a reduction in government regulation, mergers and disposals of surplus lines, changing crew consist rules, technology and improved motive power efficiency have combined to make railroads productive and highly profitable companies. They have created huge cash flows which have funded debt reduction and capital spending, making them much more profitable. Today, any railroad with a operating ratio in excess of 75% is considered to be poorly managed. They have not accomplished this by diversifying their business; their resource land grants are long gone they are almost pure rails now. They have not done it with increased leverage as they carry less debt and preferred than they did 10 years ago. They have done it by sticking to their knitting, serving the customer, driving down costs, capital discipline, technology investments and just hardnosed business practice.

An example of increased efficiency: changes in engine design have reduced the number of motive units needed per train, reducing costs in terms of both fuel and crew. Recently, GE introduced a new line of motive units with 16 cylinder higher horsepower diesel engines that, at sustained speeds, turn off four cylinders and maintain their speed on the remaining 12. The fuel savings are in the area of 30% for comparable runs.

The other issue unique to BNI is that the nature of its traffic has allowed it to replace many of its previously fixed costs with variable costs, giving it greater financial flexibility and the ability to change in an instant to accommodate business conditions. This in turn allows greater capital discipline and better returns.

While Buffett’s purchase of BNI does not seem to satisfy Berkshire’s traditional pattern of purchasing irreplaceable franchises, it does meet a more basic precept of being a toll-taker by offering a product an economy cannot do without. Most of the traffic on today’s railroads cannot be moved by any other modality. If we are going to continue to import goods from lower cost developing world countries, then the BNI route structure from the west coast ports to the mid west will be one of the few (two actually) to move that traffic.

Did he overpay? Maybe. Does it revalue all the rails? No. Will it work out for Buffett and his shareholders? Probably and better than most viewing it with “old eyes” can see at this point.

Dennis Gibb


Sweetwater Investments

Redmond, WA

Investment Fundamental - Part I

Why you lose money?
1. Payment of more than the instrinsic worth of the security.
2. Significant deterioration in a company's position.
3. Loss realized through actual sale.
4. Straying from fundamental investing disciplines.

Investing Rules
1)For Long Term investors, short-term price fluactuations are of little important.

Eclectic Investor - Part I

Thursday, December 3, 2009

Nov Non-manufacturing business activity index

Malaysia: Electricity tariif may be cut by 6 sen per kwh

The Energy, Green Technology and Water Minister Datuk Peter Chin said yesterday that the Government will trim electricity tariffs by 6 sen per kwh from 38 sen currently to 32 sen once the Bakun Hydro Electric Project begins operation. Nonetheless, he added that the Government expects the water consolidation plan in each state, including Selangor, will be done by March next year. (Sin Chew Jit Poh)

Bank of America to repay US$45bil bailout funds in next few days

NEW YORK: Bank of America Corp. said Wednesday it plans to repay its US$45 billion in government bailout funds in the next few days, a move that will help the troubled bank recruit a new CEO.


Tuesday, December 1, 2009

Swisscash Scam

KUALA LUMPUR, Aug 30 (Bernama) — Malaysians are advised not to invest in an investment fund under the name of Swiss Cash or Swiss Mutual Fund (1948) being offered through the Internet and local agents.

The Swiss Embassy here said in a statement today that the investment fund had no relation whatsoever with the country.
“The company operates outside Switzerland and is not subject to the very stringent Swiss banking laws,” the embassy said.
“The reference to Switzerland with the attribute Swiss is solely made with the purpose to attract the unaware public to invest, thinking that they would be protected by Swiss laws,” it added.
The Swiss Embassy does not recommend the investment fund and advised the public to be very cautious before investing in the fund.

"If the return is really so profitable with guaranteed capital, i will be next Warren Buffet/Bill Gates after 10 years. I go to borrow USD1B from Maybank. After 5-10 years, i can replace Warren Buffet/Bill Gates"...

First Year , USD1B return
Second Year, USD2B return
Third YEar, USD4B return
Fourth Year, USD8B return
Fifth Year, USD16B return
Sixth Year, USD32B return .........................................KAKA

Monday, November 30, 2009

Insider Trading : POS Msia - Aberdeen Asset management Plc

6:53PM POS Aberdeen Asset Management PLC and its subsidiaries (20,100 Shares Acquired)
6:53PM POS Aberdeen Asset Management PLC and its subsidiaries (82,800 Shares Acquired)
6:53PM POS Aberdeen Asset Management PLC and its subsidiaries (52,200 Shares Acquired)
6:53PM POS Aberdeen Asset Management Asia Limited (14,000 Shares Acquired)
6:53PM POS Aberdeen Asset Management PLC and its subsidiaries (14,000 Shares Acquired)
6:53PM POS Aberdeen Asset Management Asia Limited (52,200 Shares Acquired)
6:53PM POS Aberdeen Asset Management Asia Limited (20,100 Shares Acquired)
6:53PM POS Aberdeen Asset Management Asia Limited (82,800 Shares Acquired)

- Hmm...Aberdeen still buying POS Msia these few days... So Tricky!