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Warren Buffett bought 7.85 million more shares of Burlington Northern Santa Fe Corp

October 05, 2007 | About:

Warren Buffett’s investment company Berkshire Hathaway bought 7.85 million more shares of Burlington Northern Santa Fe Corp. (BNI) on Oct. 3. Today BNI was up 5.8%, and Berkshire gained $2,100 to $121,100.

Warren Buffett continues to add to his holdings with Burlington Northern Santa Fe Corp. (BNI). He bought 1.6 million shares on 08/07, and 1.4 million shares from 8/15 to 8/16 at prices around $76.5 and $78.96. He bought 10 million more shares of Burlington Northern Santa Fe Corp. (BNI) from 8/23 to 8/27 at prices around $80. After the recent purchases, Berkshire Hathaway owns more than 60 million shares of Burlington Northern Santa Fe Corp., which is about 17.2% of the company. His most recent purchases were from exercising options disclosed on Sept. 20.

As of the end of the second quarter, Warren Buffett has more than $50 billion in cash. Burlington Northern Santa Fe Corp. has a market cap of $28.5 billion, Buffett could buy out the whole company with half of the cash in hand. We have reported that Buffett also bought two other rail companies, Norfolk Southern Corp and Union Pacific Corp. It is not reported whether Warren Buffett added to these two companies, too. He has kept the information confidential.

It is interesting that Warren Buffett once said that derivatives are financial weapon of mass destruction. He has been using options to lower his purchasing cost of stocks.

With too much money in hands, Warren Buffett’s universe of investment choice is shrunken to large companies only. That is why he has been buying companies like Wal-Mart (WMT), Wells Fargo (WFC), US Bank (USB) etc. "I've got an elephant gun, I just can't find the elephant.” He said during an interview. His purchases of railroad companies surprised a lot of his followers initially. During the Berkshire annual meeting in May, Buffett said that railroad business would never be "sensational," yet its prospects had improve. Charlie Munger, Vice Chairman of Berkshire Hathaway, commented during the annual meeting of Wesco Financial (WSC), Buffett and he himself “used to not like them because they needed large amounts of capital, had tough unions, and stiff competition from the trucking business. The paradigm had shifted. Now the railroad industry has a competitive advantage by double-stacking freight. With all of the imports from China , the U.S. has a huge amount of freight being sent across the county.”

We have seen that Buffett is buying a lot more stocks these days than the past years. He spent $11 billion in the second quarter buying stocks. The recent market pullback, especially financial market pullback certainly gives him more opportunities. We will not be surprised if he makes big purchases again.

As we enter the fourth quarter, we will soon have the third quarter contest to guess what Warren Buffett has bought during the third quarter.

Rating: 3.5/5 (14 votes)


Billytickets - 10 years ago    Report SPAM
nice article the fact the oracle is buying speaks LOUDER than ANYONE else on the planet NO OffENSE
Tkervin - 10 years ago    Report SPAM
BNI........hmmmm.......roe,roa,roc, nothing to shout about..........trading kinda towards its high end historical pe. Very high capx requirements (15% or there abouts). Mr. Buffett has been buying at about $80 per share and has gotten a nice return. At $86 it just does not look attractive to me. Good grain, coal and intermodal shipping profile. Reasonably well run by all accounts. My "guess" is that BNI has a limited downside, (the proposed Dakota, Minnesota and Eastern's rail line into the Powder River coal basin would impact BNI's coal volumes but that is a ways away-if ever.) I don't think you would be hurt by this stock but after its recent run........just not for me.
Freehling - 10 years ago    Report SPAM
It seems increasingly clear to me that this is a play on coal for WEB. China is now importing coal, and American power plants are using tons of it. As a major owner of utilities, WEB understands this trend clearly. Not only does BNI seem to be one of the leading shippers of coal, but I bet it owns land with untapped coal-mining potential. Also, I disagree that it's a buy at $80 but not at $86. It's gone up less than 10 percent since WEB bought it. He wouldn't buy so much of a stock that he thought had less than a 10 percent margin of safety.
steven walthall
Steven walthall - 10 years ago    Report SPAM
The key to the BNI trades is in the statement in the main writeup above. "He has been useing Options to lower his cost basis"..That tells the whole story...The Stock s growth potentail has nothing to do with it.
Tkervin - 10 years ago    Report SPAM
While I agree that WEB would not have purchased BNI if it had less that a 10% margin of safety. But would he have purchased it if the margin of safety he calculated had eroded by 7 or 8 percent before purchase? Does BNI have a margin of safety? Yes. Is it as attractive at $86 as it was at $80? No. Is the margin of safety at $86 still adequate? An open question.
Freehling - 10 years ago    Report SPAM
Good points, tkervin. It is interesting that WEB seems to have set $80 as his price limit.
steven walthall
Steven walthall - 10 years ago    Report SPAM
I bought BNI at 80.80.....sold options calls at 81.00 for 4.80 Nov 17 (40 days) based on the math its a 5.3% rate of return to me over a 42 day period..8.1 45 day periods in a year is a 35% rate of return APR , if the stock retreats from its 87 range I have safty down to 76.00.... Buffet plays the same way...as he can use the option money to buy more shares he can have a healthy run on the way up and have NO down side! If the stock goes down my buy back for the calls get cheaper, at below 80.80 I can make money on the cover side of the call and keep the stock...On the up side I limit my gains , but I will take 35% APR any day , Thats what value investing is all about.

Any thoughts?
Dr. Paul Price
Dr. Paul Price - 10 years ago    Report SPAM
There are no BNI strike prices at $81 so i'm not clear on exactly what you did. Did you sell $80 calls when the shares were trading at $81?

Many covered writes look good percentage-wise on annualized basis terms but you should only buy and write on shares you feel very strongly will go up. It's easy to get a 5 - 10% pullback on shares that can more than wipe out your whole projected return otherwise.

Ib the case of Buffett's option on BNI-- He has call options allowing him to buy more shares. He did not sell call options as you are describing ihim doing.
steven walthall
Steven walthall - 10 years ago    Report SPAM
Stockdoc, I sold nov. 80 calls at 4.80...i did not say WEB bought or sold i would have no idea, I did say that he plays the options up and down on the stocks he owns to lower his cost basis. I agree the underlying stock is the key on selling coverd calls....the nice thing is that it protects your capital and the % gain is acceptable......

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