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The Equitymaster Research Digest

Upcoming Recommendations, Our New Initiative, and More
Jan 22, 2016

Remember Buffett's all-in wager on the economic future of the United States? Yes, we are referring to his purchase of the railroad giant Burlington Northern Santa Fe back in 2009-10.

The deal shocked many, as it wasn't vintage Warren Buffett. As per his own admission, railroads are clumsy businesses. They suck in a lot of capital, have tough unions, and face stiff competition from the trucking business.

So what changed? Some key facts around the business. And the shrewd investor that Buffett is, when those facts changed, he changed his mind.

The paradigm had shifted. It was apparent to Buffett that the railroad industry was beginning to have the upper hand - in terms of energy use but also because of double-stacked railcars.

These and some other factors finally forced Buffett to take the plunge. The stock hasn't quite set the Berkshire Hathaway portfolio on fire. But it does look like a good long-term bet.

The reason we're telling you this is to hone in on an important point: Because businesses operate in dynamic environments, it isn't necessarily true that what was once a bad or a mediocre business will stay that way forever.

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