We have often quoted Bruce Berkowitz’s views on investing in recent months. Mr. Berkowitz is the founder and manager of the Fairholme Fund and was named Morningstar’s United States stock fund manager of the year for 2009. For a good summary of Mr. Berkowitz’s investment philosophy, we highly recommend listening to his September 30 conference call.
In November, Mr. Berkowitz briefly commented on Berkshire Hathaway’s proposed acquisition of Burlington Northern. In a lengthy interview with Advisor Perspectives that was published today, Mr. Berkowitz expands on his views regarding the acquisition and specifically cites Berkshire’s unique ability to finance Burlington with low cost float as a key attribute that makes the economics of the deal compelling:
Take away the leverage, and Burlington Northern is an okay investment. The economics of railroads over trucking are great, especially given what could happen in the Far East. I don’t know if it’s a brilliant investment on its own, but if you can guarantee or figure out a way to fund a huge chunk of the investment at a near-zero interest rate and you are highly confident that the terms and conditions will last for a very long period of time, at least through the repayment of that debt with the cash flows of the company, then you have a heck of an investment.
Recently, we attempted to address the apparent contradiction between Warren Buffett’s statement that Burlington Northern shares are “fairly valued” in the mid-90s per share range with his willingness to use apparently undervalued Berkshire Hathaway shares for part of the transaction. In that article, we speculated that Mr. Buffett may have been willing to pay a premium for Burlington because he believes that the company is worth more as a Berkshire subsidiary than as a stand alone public company. While this thesis may yet prove to be incorrect, it is good to know that highly successful investors like Mr. Berkowitz have come to similar conclusions.
The author owns shares of Berkshire Hathaway.