Comments on: A Few thoughts on the Burlington acquisition http://ContrarianEdge.com/2010/01/31/a-few-thoughts-on-the-burlington-acquisition/ Vitaliy Katsenelson blog on the economy, stock market, and stocks. Applying Active Value Investing approach. Fri, 18 May 2012 08:51:00 +0000 hourly 1 http://wordpress.org/?v=3.2.1 By: Andrew http://ContrarianEdge.com/2010/01/31/a-few-thoughts-on-the-burlington-acquisition/comment-page-1/#comment-191775 Andrew Fri, 01 Oct 2010 19:33:00 +0000 http://ContrarianEdge.com/?p=2035#comment-191775 Vitaliy I disagree on your thoughts of Burlington Northern being a "capital intensive" business. If you take a look at the last decade of financials, it has consistently operated with negative working capital. They, in other words, required no money to operate their business. All the cash generated from operating the business was "thrown off" and used to repurchase shares, pay out dividends, and reinvest at about 14-16% per year (not a bad return!). Nor is it very cyclical... it has stayed very consistent, even through 2008. Perhaps the industry is categorized by this, but BNI doesn't fit that description. I do, however, agree that he over-payed. Not by a lot, I see them being able to continually reinvest at what Buffett called a "reasonable rate of return" for hopefully a long time, but it gets difficult to compound his money the way he used to with such a large pile of cash. BNI will allow him to get a decent return on his money. Also, why do you care about the average historical P/E? The market is wrong until proven right, this shouldn't be a way to see if someone overpayed... Vitaliy

I disagree on your thoughts of Burlington Northern being a “capital intensive” business. If you take a look at the last decade of financials, it has consistently operated with negative working capital. They, in other words, required no money to operate their business. All the cash generated from operating the business was “thrown off” and used to repurchase shares, pay out dividends, and reinvest at about 14-16% per year (not a bad return!). Nor is it very cyclical… it has stayed very consistent, even through 2008. Perhaps the industry is categorized by this, but BNI doesn’t fit that description.

I do, however, agree that he over-payed. Not by a lot, I see them being able to continually reinvest at what Buffett called a “reasonable rate of return” for hopefully a long time, but it gets difficult to compound his money the way he used to with such a large pile of cash. BNI will allow him to get a decent return on his money.

Also, why do you care about the average historical P/E? The market is wrong until proven right, this shouldn’t be a way to see if someone overpayed…

]]> By: Doug http://ContrarianEdge.com/2010/01/31/a-few-thoughts-on-the-burlington-acquisition/comment-page-1/#comment-190677 Doug Sun, 31 Jan 2010 15:53:39 +0000 http://ContrarianEdge.com/?p=2035#comment-190677 I admire Warren as much as the next Buffettologist and then some, but he does talk his own book a bit too much for my taste. We shareholders would have been better off if Warren had paid us a large dividend while the tax rate is only 15% and then told us to buy BNI on the market for $75. I admire Warren as much as the next Buffettologist and then some, but he does talk his own book a bit too much for my taste. We shareholders would have been better off if Warren had paid us a large dividend while the tax rate is only 15% and then told us to buy BNI on the market for $75.

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