market folly

While the dominant headlines yesterday centered around Warren Buffett & Berkshire Hathaway's (BRK.A) acquisition of Burlington Nothern Santa Fe (BNI), we wanted to highlight one of his other recent moves. Having already trimmed his stake in Moody's (MCO) a few times prior, legendary investor Warren Buffett has sold even more shares of the ratings agency. On October 28th, 2009, Buffett sold 1,133,027 shares at a price of $24.8637. Additionally, he sold 19,600 shares the next day at a price of $25.2728 per share. This brings his total ownership to 38,066,685 shares. These sales are in addition to other transactions he completed back in the beginning of September where he sold 794,388 shares between $26-27. While he has obviously been selling shares, we need to highlight that he does still indeed own quite a sizable chunk of the company. We simply take note because he has now made multiple sales within a few months. Buffett is an iconic American investor and we've compiled some compelling resources on him for those interested. You can check out Warren Buffet's recommended reading list, as well as the top 25 Warren Buffett quotes.

Buffett's actions will certainly be to David Einhorn's liking. Einhorn's hedge fund Greenlight Capital has been publicly short Moody's and McGraw Hill (MHP) and we've covered his short thesis in-depth with his presentation on the curse of the Triple-A. It will be interesting to see if Buffett is slowly but surely making his way toward the exit, or if he is merely reducing his stake to a more 'comfortable' level given the potential risks associated with this name.

Lastly, we'd be remiss if we didn't cover the recent news that Buffett will acquire Burlington Northern Santa Fe for $100 per share, a nice premium above $75 where shares had been recently trading. Berkshire Hathaway already owns 23% of BNI so this move obviously makes sense. After all, we noted way back in October of last year that Buffett was selling puts on BNI in an attempt to capture more shares. Speaking on the deal, Buffett said, "It’s an all-in wager on the economic future of the United States, I love these bets." He is definitely staying true to the piece he penned back in the market panic last year about buying American. This activity in the railroad sector instantly reminds us of the once hedge-fund-favorites Union Pacific (UNP) and CSX (CSX). While many hedge funds dumped these names in the wake of the economic crisis, it will be interesting to see if any of them flock back like vultures now that Buffett has snatched up one of the dominant players in an oligopoly of an industry.

Taken from Google Finance, Burlington Northern is "a holding company. The Company, through its subsidiaries, is engaged primarily in the freight rail transportation business. BNSF Railway Company (BNSF Railway) is the Company’s principal operating subsidiary. BNSF Railway operates various facilities and equipment to support its transportation system, including its infrastructure and locomotives and freight cars. It also owns or leases other equipment to support rail operations, including containers, chassis and vehicles. Support facilities for rail operations include yards and terminals throughout its rail network, system locomotive shops to perform locomotive servicing and maintenance, a centralized network operations center for train dispatching and network operations monitoring and management in Fort Worth, Texas, regional dispatching centers, computers, telecommunications equipment, signal systems and other support systems."

Moody's is "a provider of credit ratings and related research, data and analytical tools, quantitative credit risk measures, risk scoring software, and credit portfolio management solutions and securities pricing software and valuation models. The Company operates in two segments: Moody’s Investors Service (MIS) and Moody’s Analytics (MA). The MIS segment publishes credit ratings on a range of debt obligations and the entities that issue such obligations in markets worldwide, including various corporate and governmental obligations, structured finance securities and commercial paper programs. The MA segment develops a range of products and services that support the credit risk management activities of institutional participants in global financial markets. These offerings include quantitative credit risk scores, credit processing software, economic research, analytical models, financial data, securities pricing software and valuation models."