WASHINGTON—Berkshire Hathaway’s Warren Buffett, the fabled investor, has introduced the largest deal of his life: He’ll purchase the stake he doesn’t already personal in Burlington Northern Santa Fe, the railroad operator, for $26.6 billion and assume the corporate’s $10 billion debt. At $100 per share, he can pay a 30 p.c premium on BNSF’s market worth—in his phrases, “an all-in wager on the financial way forward for the US.”

Given Buffett’s iconic energy, the worldwide recession, and the conjectures on the way forward for U.S. capitalism, the transfer has triggered a captivating debate. Has Buffett (a director of The Washington Publish Co.) lastly misplaced his marbles, as some level out, tying his empire to an old-economy, unionized firm that transports numerous politically incorrect coal at a time when individuals are salivating over smartphones and private digital assistants (PDAs)?

No, he hasn’t—which isn’t to say the knowledge of his transfer is apparent. To get a way of what the railroad operator is perhaps value, I seemed on the prospects of each BNSF and the rail trade; based mostly on the corporate’s report, I projected its future money flows, discounting them to their current worth. I agree with these for whom $100 per share appears costly. At greatest, that worth can be justified a few years from now. So what’s going on?

Buffett comes from the varsity of worth investing began by Benjamin Graham and practiced with magic outcomes by the likes of Phil Fisher, Walter Schloss, John Templeton and, extra not too long ago, Prem Watsa. The thought is that you simply deal with intrinsic worth, not available on the market’s newest fad, and purchase an organization whether it is undervalued. “Whereas enthusiasm could also be vital for nice accomplishments elsewhere,” wrote Graham, “on Wall Avenue it virtually invariably results in catastrophe.” Which is why worth traders purchase with the expectation of promoting—in Fisher’s phrases—“virtually by no means.”

In BNSF, Buffett has clearly valued the safety the corporate enjoys due to the large prices of entry into such a capital-intensive trade and in addition as a result of, within the age of environmentalism, railroad operators, that are 3 times extra fuel-efficient than delivery by truck, can hope for an extended life. True, the Environmental Safety Company has positioned mandates for lower-polluting locomotives on railroad operators too, however the company itself admits that these engines won’t be absolutely adopted earlier than 2030.

Since freight railroads will nonetheless be a truth of life in a giant nation that can proceed to commerce with itself, with China and with the remainder of the world, Buffett is saying: Nevertheless lengthy the recession lasts, BNSF inventory ought to do properly for many years to return.

This deal, then, is Buffett’s testomony of types. For years, individuals have speculated concerning the succession at Berkshire Hathaway, whose market capitalization is value greater than the GDP of one-third of the nations of the world. At 79, Buffett’s response has come within the type of the mom of all offers.

There isn’t any short-term prospect of the deal enriching Berkshire Hathaway shareholders. Even when the angle is the subsequent 10 years, the value is pricey. However Buffett doesn’t assume like mere mortals. Trying at the least 25 years on, he’s putting within the palms of his successor a legacy that can protect and develop at an inexpensive tempo the wealth he has constructed during the last 44.

In a world economic system dominated by change, Buffett is telling us, sure old style industries adapt simply sufficient to take care of their “moat,” as he likes to name long-term aggressive benefits, and survive the various companies that capitalism’s “artistic destruction” kills in order that others are born.

The Monetary Instances’ John Gapper missed the purpose when he wrote that “as a judgment on the power and prospects of the U.S. economic system” the deal will not be promising. Buffett will not be saying that solely Nineteenth-century industries will prosper within the U.S. economic system of the longer term, however that in a world characterised by uncertainty, during which the U.S. will proceed to provide and commerce, and due to this fact to ship freight, he has discovered a approach to safeguard his investing legacy.

In an period of loopy bets, colossal hubris and unethical shenanigans on Wall Avenue, the world’s best investor has despatched a message of humility, steadiness and accountability—no matter his political opinions. Most of us wouldn’t have paid $100 a share for Burlington Northern Santa Fe. However Buffett has proved everyone improper for the final 44 years. I believe he’ll achieve this once more.