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The Buffett Effect: A Trader's Best Friend?

OMAHA, Neb. ( TheStreet) -- Warren Buffett (check out Buffett's portfolio) is famous for saying that his preferred holding period for a stock is "forever." But much to the chagrin of the Oracle of Omaha, some short-term traders have unusually benefited from Buffett's recent big bet on the railroads.

Notably, the rail industry is not a natural for short-term trading, as the stocks typically trade in a relatively small range. Short-term traders make their big bucks on the likes of volatile stocks like AIG (AIG - Get Report), and stocks in more volatile sectors, like technology's Apple (AAPL - Get Report).

Still, short-term traders looked to rails after the news of the Berkshire Hathaway (BRK.A - Get Report) initial investment in Burlington Northern (BNI), and subsequent 100% acquisition of Burlington on Nov. 3, specifically because they knew the Buffett name would create unusual momentum in the sector.

"Buffett is the gold standard, and when the news came out on the rails, we started to punch up all of our rail trades," said Mike Bellafiore, partner at SMB Capital. "The Buffett decision becomes a momentum trade, and once the momentum starts to shift, you look to get out quick. It's literally a game of hot potato."

Indeed, UBS Investment Research argues in a controversial report on the rail industry that Buffett has caused successive mini-bubbles in the rail sector. And while the "Buffett Bubble" is open to debate, striking a quick hit on the Berkshire Hathaway's rail-love is a fact that has already booked profits for traders.

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