Warren Buffet had himself quite a week last week; it was announced that he added holdings in banking and railways, gave advice on Alex Rodriguez on re-signing with the Yankees, giving A-Rod advice on making an end-run around his agent who gave him horrible advice (if A-Rod was really smart he would refuse to pay his agent’s fee as well) and a soon to be released study by two professors at the American University and UNLV found that buying what Buffet bought for the last three decades would have yielded you 24.6% on your money (or approximately twice the return of the S & P 500 over the same period) even accounting for the fact that Buffet would not legally have to report his earnings for up to four months after his purchase.

Just a couple of comments on Buffet’s latest moves:

1. Buffet’s buying banks:  Buffet added positions in U.S. Bancorp and Wells Fargo- two regional powerhouses (as a side-note, there is speculation that U.S. Bancorp could be a take-over target for a Canadian bank) with reputations for maintaining prudent lending practices (recent history notwithstanding). Over the long term, banks tend to make money in bad times and outrageous money in good times but many seems to be forgetting this lately.  Love the unloved as the saying goes.
2. Buffet’s buying railways: Buffet increased his stake in Burlington Northern Santa Fe Corp. (the 2nd largest railway in the U.S.) but reduced positions in two other railways. Railways interest me for several reasons: Buffet and Bill Gates (through his charities and trusts) own significant stakes in railways and these guys aren’t stupid. I did some research and it makes perfect sense: there are only 5 major railway players in North America, each has a dominant market share in their region (for example, CNR and CP split up Canada into east and west), barriers to entry are very high (you require government approval, a new market player would have to rent the lines off a competitor or build a whole new one (where?), significant capital investment is required etc. etc.), the technology is pretty stable so there is a lot of free cash lying around to buy back shares or increase dividends rather than put money in R&D and its not a “sexy” stock which means there is less speculation on it than, say, a tech or bio-tech stock. Finally, it is a domestic stock that will benefit from the rise of China as trains are needed to transport goods from ports into the interior. The share price of Canadian Railways is taking a beating lately because of the Canadian dollar- I am keeping a watch on it (please do your own due diligence).
3. Buffet loves old people. Buffet has now purchased 61 million shares in Johnson & Johnson: makers of pharma and health-care related products. What is interesting to me is that Buffet has been adding J n J even though the share price has increased- makes you wonder if there is more appreciation in store…