This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Buffett: Planes, Trains and Investment Pains

At the May 4 meeting, Buffett compared the consolidated airline industry to that of government-sponsored mortgage agencies Fannie Mae (FNMA) and Freddie Mac heading into the financial crisis.

"They were enormous companies who had a huge advantage over everyone else," Buffett said of Fannie and Freddie, however, it didn't keep them from making poor economic decisions such as lowering credit standards to chase mortgage market share during the housing boom.

Buffett said airlines remain a "sexy" business that perpetually attracts new entrants to undercut price and profit margins. The 'Oracle of Omaha' added he's turned down many pitches related to the airline industry.

Berkshire vice chairman Charlie Munger noted airlines aren't moated from competition, in contrast to the recently consolidated railroad industry, which Berkshire is a large investor in by way of a $26 billion acquisition of BNSF Railways, the firm's largest-ever deal.

"You couldn't create another railroad and you can create another airline," Munger said.

Still, railroads outperformed the broader S&P 500 Index for about a decade, amid consolidation, before Berkshire Hathaway made its 2009 deal for BNSF. Buffett and Munger both said they could, similarly, be missing early signs of a turn in the airline industry.

Munger said Bill Miller of Legg Mason could very well be correct in anticipating a new era for the industry. Miller, a prominent value investor, runs the Legg Mason Capital Management Opportunity (LMOPX), the top performing mid-cap value fund in the first quarter of 2013 after a 20%-plus rise, according to Morningstar.

According to Morningstar data, United Continental, Delta Air Lines and US Airways are among the Legg Mason Opportunity fund's top 10 holdings.

Berkshire may have the airline industry on its radar after boosting spending on NetJets in recent years, however, a major acquisition or new investment is unlikely at this point.

"It goes into my too hard pile," Munger said of airline investments.

-- Written by Antoine Gara.

2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
LCC $0.00 0.00%
BRK.A $221,180.00 -0.48%
BRK.B $147.41 -0.63%
DAL $44.52 -3.05%
UAL $65.18 -3.32%


DOW 18,132.70 -81.72 -0.45%
S&P 500 2,104.50 -6.24 -0.30%
NASDAQ 4,963.5270 -24.3630 -0.49%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs