Can you invest safely with Buffet and India?
People like to invest safely - if they can find safe investments. These two events may give us some inkling of where we can find relatively safe investments now: Berkshire Hathaway will buy Burlington Northern. India will buy 200 tonnes of gold being sold by the IMF.
Let's start with Buffet's company Berkshire Hathaway. His company is a kind of investment vehicle for Buffet and his partner Charlie Munger. They buy companies and group them under the "umbrella" of Berkshire Hathaway. People who invest in Berkshire Hathaway do so because they consider Warren Buffet an investing genius - one of the greatest investors ever.
So when Berkshire Hathaway announces it's buying a railroad - and that this purchase is the largest purchase in Berkshire's storied history - this makes for big news. What hasn't gotten as much press is the fact that Berkshire Hathaway will declare a 50-1 stock split. Here's what I think of these two pieces of news.
Purchasing the railroad will be touted as a bet on the economic future of America. Railroads carry goods from the manufacturer to the consumer. The Obama Administration has announced it will spend $8 billion of taxpayer money on railroads, specifically passenger rail travel, to reduce our dependency on oil - since better rail travel will, conceivably reduce our use of cars, which use lots of gasoline - and belch out lots of pollution.
Conclusion: Buffet thinks the administration's plans to "go green" will spur profits for railroads in general. I think he also believes the price of oil is going to steadily climb, making the other major transportation outlet - trucks - less economical for transporting goods.
As for the 50-1 split, it'll make buying shares of Berkshire Hathaway easier for both institutional and individual investors. At least that would seem to be the logic here.
So buying Berkshire may not be a bad idea. But, when you think about this, maybe buying oil makes sense too.
Buffet's big deal kind of squelched the other big story: India announcing it would purchase 200 tonnes of gold from the IMF. While Buffet's decision to buy Burlington Northern can't be considered a shock (Berkshire already owned more than 26% of the railroad's stock that it had purchased over the last year or so), the Indian-IMF story was a shock.
The IMF had announced it was selling 400 tonnes of its gold (did you know it held gold?) a few months back. Everyone wondered what this would do to the price of gold. But more suprisingly, China had expressed interest in possibly buying this gold. Now India steps in and takes half of it.
What's stunning is how quickly the gold was bought. After announcing the sale a while back, the IMF goes out to the market to sell half and India just said, "We'll take it." Done deal.
Now we're seeing that the previous talk from China, India and other Asian countries is real. They've been saying they want to continue to diversify their "reserves" (which used to be mostly held in US dollars) by not only buying more Euros and Yen, but also by buying more gold. I don't know if the market really believed that they were as serious about gold as we now see they are.
Investment idea: gold's bull market, begun sometime around 2000, will continue.
If you want invest safely, you've got to use your noodle and come up with a theme or thesis that makes sense. These two ideas are pretty solid. At least they seem that way right now.
But what everyone seems to have missed is the irony of the two announcements coming on the same day. It involves, Buffet, Buffet's father, investing and gold. I'll try to get to that in a future post. It's pretty interesting stuff.
Let's start with Buffet's company Berkshire Hathaway. His company is a kind of investment vehicle for Buffet and his partner Charlie Munger. They buy companies and group them under the "umbrella" of Berkshire Hathaway. People who invest in Berkshire Hathaway do so because they consider Warren Buffet an investing genius - one of the greatest investors ever.
So when Berkshire Hathaway announces it's buying a railroad - and that this purchase is the largest purchase in Berkshire's storied history - this makes for big news. What hasn't gotten as much press is the fact that Berkshire Hathaway will declare a 50-1 stock split. Here's what I think of these two pieces of news.
Purchasing the railroad will be touted as a bet on the economic future of America. Railroads carry goods from the manufacturer to the consumer. The Obama Administration has announced it will spend $8 billion of taxpayer money on railroads, specifically passenger rail travel, to reduce our dependency on oil - since better rail travel will, conceivably reduce our use of cars, which use lots of gasoline - and belch out lots of pollution.
Conclusion: Buffet thinks the administration's plans to "go green" will spur profits for railroads in general. I think he also believes the price of oil is going to steadily climb, making the other major transportation outlet - trucks - less economical for transporting goods.
As for the 50-1 split, it'll make buying shares of Berkshire Hathaway easier for both institutional and individual investors. At least that would seem to be the logic here.
So buying Berkshire may not be a bad idea. But, when you think about this, maybe buying oil makes sense too.
Buffet's big deal kind of squelched the other big story: India announcing it would purchase 200 tonnes of gold from the IMF. While Buffet's decision to buy Burlington Northern can't be considered a shock (Berkshire already owned more than 26% of the railroad's stock that it had purchased over the last year or so), the Indian-IMF story was a shock.
The IMF had announced it was selling 400 tonnes of its gold (did you know it held gold?) a few months back. Everyone wondered what this would do to the price of gold. But more suprisingly, China had expressed interest in possibly buying this gold. Now India steps in and takes half of it.
What's stunning is how quickly the gold was bought. After announcing the sale a while back, the IMF goes out to the market to sell half and India just said, "We'll take it." Done deal.
Now we're seeing that the previous talk from China, India and other Asian countries is real. They've been saying they want to continue to diversify their "reserves" (which used to be mostly held in US dollars) by not only buying more Euros and Yen, but also by buying more gold. I don't know if the market really believed that they were as serious about gold as we now see they are.
Investment idea: gold's bull market, begun sometime around 2000, will continue.
If you want invest safely, you've got to use your noodle and come up with a theme or thesis that makes sense. These two ideas are pretty solid. At least they seem that way right now.
But what everyone seems to have missed is the irony of the two announcements coming on the same day. It involves, Buffet, Buffet's father, investing and gold. I'll try to get to that in a future post. It's pretty interesting stuff.
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