Warren Buffett Explains How To Get Rich From Railroad Stocks

And why specifically have you invested Burlington Northern instead of buying a capital [Music] [Applause] offic? Yeah, I'm certainly glad she's not nine years old. Yeah, I'm just sitting here thinking which of the six panelists we're going to bump next year and put you [Laughter] in.

Well, I thought I was doing well when I bought that city service at 11. The uh the answer is that we have we'd love we always prefer the businesses that earned terrific returns on capital like a seized candy when we bought it or a good many of the businesses and and we've and we've and uh you know American Express you know earns a a terrific return on equity and has for a very long time. Uh uh the fact that that we buy a Burlington BNSF, Burlington Northern uh uh means that essentially we can't get more money deployed in capital light businesses uh at prices that make sense to us.

And so we have gone into more capital intensive businesses that are good businesses. But wouldn't it be wonderful if we could run the the railroad without you know without trains and track and tunnels and bridges and a few things. Uh we get a decent return on the capital intensive businesses.

Uh we we bought most of them at at very decent prices and they've been run very well since we've we bought them. Uh we still love a business that takes very little capital and earns high returns and continues to grow and requires very little incremental capital. We can't deploy as much money as we have in doing that.

And so is the second best choice still a good choice? The answer is yes. It's not as good as the best choice.

Charlie. Well, yes. I I like the aspiration of that young lady.

She basically wants a royalty on the other fellow's sales. And of course, that's a very good model. And if everybody could do that, why nobody would do anything else.

The the reason we're satisfied with our utility returns and our railroad returns is they're quite satisfactory. And we and the quite satisfactory. I wish we had two more just like them.

Don't you, Warren? Yeah, definitely. So the answer is they're good enough and you're you're asking us to get perfection if you want us to have all our money in Coke at say 5% of what it's now selling for.

Yeah. And a business like Apple really doesn't take much capital. But uh uh so you got to spend a lot of money to buy businesses like that.

Very few are for sale. And and the answer is we have not foregone any opportunity to buy uh businesses that earn high returns, very high returns on equity capital when we could buy them at a sensible price to buy these other businesses. So they haven't shoved anything else off the table.

But you are you definitely have a job in our capital allocation department. The problem is has been about 1300 daily newspapers in the United States. There were 1,700 not that long ago.

is that no one except the Wall Street Journal, the New York Times, and now probably the Washington Post has come up with a digital product that really in any really significant way will replace the the revenue that is being lost as as print newspapers lose both circulation and advertising. ing. And if you look at the communities in which we operate or the communities in which you name it uh other other newspapers operate, the community could be prospering.

We're in a prosperous uh economy presently. Uh and all are losing daily circulation. They're losing Sunday circulation.

And they're using street what call street circul uh street sales they're losing home delivered and it is a I've been surprised uh that the rate of decline has not moderated uh in the last five years we we bought all the papers at reasonable prices so it's it is not a great economic consequence to Bergkshire but I would like to see daily newspapers uh actually you know be economically viable because of the importance to society but I would say that the trends which I put those circulation figures in there because I think uh shareholders entitled to look yeartoyear u at at what is happening and it's not only it's happening to 1300 newspapers throughout the United States and it happens in small towns where you would think that the alternative sources of information would not be that good. It happens uh it happens every place and uh uh the journal, the times and probably the post have a viable uh economic model in in the digital world and probably will continue to shrink. I'm almost certain we'll continue to shrink in the print world, but the digital world will be big enough that uh and they'll be successful enough so that they have in my view a sustainable business model.

But it is very difficult uh to see with the lack of success in terms of important dollars arising from digital. It's it's it's difficult to see how the how the print product uh uh survives over time and that's I'm afraid that's true of 1300 papers in this country and uh we'll keep looking to see if there is a way to do it but but you'd have to look at our experience and and look at the experience of everyone else's mlache newspapers came out the other day you know and I think the newspap which is very good you know fine cities that they operate in and advertising revenues down something like 17 or 18% in circulation. But it isn't that just them.

It's it's everybody in the business. And I I wish I had a better answer for you, but the but I don't. I would say that the economic significance to Bergkshire is is almost negligible.

But but the significance to the society I think actually is is enormous. And uh you know I hope uh I hope that we find something. I hope others find something because we'll copy it.

But so far we have not succeeded in that. Charlie, well the decline was faster than we thought it was going to be. So it was not our finest bit of economic prediction.

And I think it's even worse. I think to the extent we miscalculated, we may have done it because we both love newspapers and are and have considered them so important in our country. These little local newspaper monopolies tended to be owned by people who behaved well and tended to control the politicians.

And we're going to miss these newspapers if they disappear. We're going to miss them terribly. And and I think you met it doesn't happen, but the figures are not good, Warren.

No, no, they aren't. And and it isn't just, you know, it isn't some town that has a particular problem with unemployment or anything of the sort. And it isn't due to general economic conditions.

It's uh uh it's due to the fact that in this paper if you wanted to know the baseball results from the present day and the box scores and everything else, they told you the following morning and it was still news to you and the financial material that I read from there in terms of looking at the stock prices and everything. They were news to you the following morning and the what was developing in the Pacific in terms of the war was news to you when you read about it in the morning in the New York Times and it's news is what you don't know that you want to know and the and those help wanted ads you know segregated as they may have been uh still were the place to go to look to find a job and you can go up and down the line and one element after another where the daily print newspaper was primary.