Berkshire or Rail Volume: Which Is King?
To many sector watchers, there is no debate; the primacy of rail volume data is irrefutable. But it's a testament to the power of Berkshire Hathaway's (BRK.A)acquisition of Burlington Northern (BNI) that it may have derailed convention long-term sector wisdom -- at least temporarily.
Indeed, even though the November acquisition had an immediate and potentially negative secondary impact -- some institutional investors will be forced to divest Berkshire holdings once Burlington's stock is folded within it -- buy-and-hold railroad investors received a big wish in the form of a big boost to the railroad industry. Reinvestment is likely to come in the true railroad stocks left on the landscape, anyway, stocks which investors also hope will benefit from Buffett's bet.
Be careful what you wish for, though: the law of unintended (market) consequences has resulted in fears of mini-bubbles in the rail sector being triggered by Buffett's bet, as outlined in a UBS Investment Research report on the market reaction to Berkshire Hathaway's three major moves related to Burlington.While the UBS report argues that momentum investing in the stodgy railroad sector led investors to price levels beyond what the fundamentals were able to justify, some of the leading institutional investors respectfully disagree. Even as they accept the empirical nature of the UBS data, they just don't agree with the conclusions reached about Warren Buffett's ability to inflate -- and deflate -- the sector . Rick Paterson, the UBS analyst in charge of the research, said the team spoke with a range of institutional investors after it released the report, and there was definitely a divide in the reaction. "Most of my institutional clients read it, and a lot were surprised by the analysis and tended to agree, as it triggered their memory around these events. About 40% were not in agreement," Paterson said.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV