Warren Buffett Is on a Radical Track

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Mark Seliger for TIME

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In 2009, when investors were pulling money out of the U.S. and pouring it into emerging markets, Buffett bought BNSF (Burlington Northern Santa Fe), the country's second largest railroad, for $33 billion. It was "the most important purchase Berkshire ever made," says Buffett. It was a bet on higher energy prices (which would favor coal-hauling railways over trucking firms) as well as on a general pickup in consumer demand. "Over time, the movement of goods in the United States will increase, and BNSF should get its full share of the gain," Buffett wrote in the 2010 Berkshire Hathaway annual report. "Buffett has bought himself an immensely stable business throwing off predictable returns for about half of what it's worth," says Whitney Tilson, a fund manager and co-founder of the Value Investing Congress, who follows Buffett and Berkshire Hathaway closely. "Railroads are never going to be usurped by China. In fact, Burlington will only benefit from more trade."

That underscores two crucial facts about much of Buffett's portfolio. First, it's built to be idiotproof--many of the businesses are very conservative plays, such as utilities or top-shelf blue chips that throw off reliable, inflation-beating dividends. As owner of one of the largest reinsurance businesses in the world, Buffett has studied his actuarial tables; while he thinks it's a fair bet that he'll be running the company in five years, he's preparing for the day when he's not. His successor will almost certainly be a trusted individual from within the company. Still, much of the goodwill capital of Berkshire lives in Buffett himself. Many of the best deals the company has done in recent years have come to him, rather than being sought out, because he confers such luster on any company he touches. Often he negotiates extremely preferential terms. For Buffett, buying a beleaguered institution like Bank of America is actually a relatively low-risk bet on the fact that U.S. financial institutions are emerging from the crisis stronger than their international peers, thanks to those generous government bailouts. It may take a while, even a decade, for banking to fully recover, but Buffett can afford to wait.

That reflects the second key point: many of Buffett's investments aren't bets on America so much as they are bets on the ability of American companies to continue exporting capitalism around the world. Companies like American Express, Coca-Cola, Kraft and Procter & Gamble are giant global franchises that get an increasing amount of their growth from emerging markets while still paying out a reliable dividend. They are in many ways safer than U.S. Treasury bills, which Buffett continues to hold as part of his cash-on-hand mantra, but begrudgingly. He would always, as he recently noted, rather buy "productive assets."

IBM, the global tech giant that Buffett bought into last year, is part of that strategy. The buy confused some industry observers, since Buffett has always shied away from tech stocks. But IBM is no longer primarily a tech company; it's a service company--one that makes a lot of its money doing the safe and steady work of helping governments and large businesses around the world automate themselves.

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