In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche
“At Berkshire, the whole is greater – considerably greater – than the sum of the parts.” – Warren E. Buffett Chairman of the Board, Berkshire Hathaway Inc. Taken from the 2018 shareholder letter.
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However, there are far cheaper railroads out there. For example, the CSX Corp had a market cap of $59.79 billion, the Norfolk Southern had a market cap of $49.02, and the Kansas City Southern had a market cap of $11.24 billion on 22 February 2019.
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Therefore, California could limit the amount of float, Berkshire Hathaway (NYSE: BRK.A) brings in by changing the way auto insurance rates calculated. For instance, women could pay less and men more through gender-neutral auto insurance.
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My prediction is that Buffett will buy up lower priced stocks of cash-rich dividend paying companies. Since there are lots of those out there it is hard to predict what will catch his eye.
Berkshire will be confine major investments to private equity, which is booming right now. Likely, private equity targets for Berkshire Hathaway include Lyft, Instacart, and Airbnb.
Lyft and Airbnb which both have the potential to generate a lot of cash will attract Uncle Warren’s attention. Instacart, which has escaped attention by operating in an unsexy; but huge, market groceries might catch Buffett’s eye.
The idea is to create a private enterprise that functions something like Britain’s National Health Service (NHS). That is one stop shopping for all your health insurance and healthcare needs. The NHS operates hospitals and provides health insurance in the United Kingdom.
CVS is more like the NHS than many people think; it already operates more than 1,100 MinuteClinic walk-in healthcare facilities, for example. There are MinuteClinics in 33 states and the District of Columbia that have received more than 37 million visits.
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It looks as if the future of electricity marketing will take the form of retail. One wonders if this is a viable industry and if energy-based cryptocurrencies will one day become a value investment.
The marriage of cryptocurrency and energy might create a fascinating new class of investments. Only time will tell if these tokens will have any real value.
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The cash flow might explain some of the problems at CenturyLink, the company is taking in just enough cash to pay the bills and finance a large salary for executives. It might also disprove a popular notion of Warren Buffett’s to invest businesses that are so simple to operate somebody’s idiot nephew can run them.
The reason Buffett might be wrong is that once in the executive suite, the idiot nephew is in a good position to loot the company. He might order a new corporate jet instead of updating the equipment, or sell off potentially profitable assets in order to raise the dividend and the price of the stock in his compensation package.
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The Union Pacific has a pretty bright future because it owns four rail lines that connect the Great Plains to the West Coast.
They include the original transcontinental rail line from Omaha, Nebraska to Oakland, California and the Southern Pacific line from Los Angeles to Houston. Shorter routes include the line from Salt Lake City to Los Angeles, and the Oregon shortcut from Pocatello, Idaho, to Portland, Oregon, and Seattle. Other key routes include a line from El Paso to Chicago, the line from Houston to Chicago, and the line from Denver to Salt Lake City.
These tracks put the Union Pacific in a great position to cash in on all the raw materials shipped from the West and Midwest to Pacific and Gulf Coast Ports. It is also in a good position to haul all the consumer goods shipped from China to U.S. ports.
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Those who doubt that American stocks might be in a potentially catastrophic bubble need to take a look at the Kansas City Southern (NYSE: KSU). The railroad makes little money, yet its stock is dangerously overpriced.
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The potential of this are absolutely staggering. Just a few of the things Uncle Warren can do with all that cash include:
Buy America’s second largest grocer; Kroger (NYSE: KR), outright and still have $75.56 billion left in the bank. That’s amazing because Kroger reported revenues of $118.05 billion on 31 July 2017. Kroger had an enterprise value of $32.74 billion on November 10, 2017.