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Now could be Warren Buffett’s moment to help America

From a new presidential slogan of “Build Back Better” to an economy strained by supply chain problems everywhere, it’s never been more clear that America is consumed with the need to invest heavily across a variety of industries to power growth in the years to come.

That still begs the question of who’s in the best position to make those investments. When the need is in the hundreds of billions, if not trillions, of dollars over an indefinite time horizon, the list of potential players shrinks dramatically. Not many companies have the resources to do it in the private sector. Others aren’t in the right industries or lack the expertise to make those kinds of investments – think Facebook or Apple. But one company with a famously long view that’s been struggling with how to deploy its cash in recent years hinted in its annual letter last week that it’s up to the challenge: Berkshire Hathaway.

As Warren Buffett’s Berkshire Hathaway’s cash builds up, it is in a unique position to be able to invest heavily in US infrastructure.

As Warren Buffett’s Berkshire Hathaway’s cash builds up, it is in a unique position to be able to invest heavily in US infrastructure.Credit:AP

In his annual letter, Berkshire chief executive officer Warren Buffett noted that two of the company’s four crown jewels are infrastructure juggernauts. Burlington Northern Santa Fe Railway Co. operates the biggest US railroad by revenue, and Berkshire Hathaway Energy operates power grids, natural gas pipelines and utilities across the US, as well as investing in renewable energy projects.Thanks in large part to the ownership of those two companies, Berkshire owns more US property, plants and equipment than any other domestic company, with AT&T coming in second. With the acquisition of companies such as BNSF and continued investment in its other businesses, Berkshire’s property, plant, and equipment net assets have soared over the past 20 years to $US193 billion ($247 billion) from $US2.7 billion.

As Berkshire has grown, the company’s investment tactics shifted as it became more difficult to find deals significant enough to move the needle at the conglomerate. That meant investing in bigger companies and even buying them outright – Berkshire acquired BNSF in 2010. More recently it’s also meant allowing cash to pile up on its balance sheet as rising stock prices have made acquisitions less compelling, and buying back its own shares.

One investment tactic of Berkshire’s that bore fruit around the 2008 financial crisis was being a liquidity provider of last resort. As the world was falling apart, no other company was in a position to infuse billions of dollars of capital into companies like General Electric, Goldman Sachs, and Bank of America, and Berkshire was rewarded for its efforts.

But last March, after the pandemic sent the market plummeting, shifts in both monetary policy from the Federal Reserve and fiscal policy from Congress didn’t give Berkshire the same kinds of opportunities. If we’ve entered an era where such policies become more common, it might mean fewer opportunities for multi-billion dollar private-sector bailouts.

That’s why infrastructure and fixed investment might become the ideal Berkshire investment opportunity in the years to come.

The failure of the Texas power grid during last month’s winter storms is just the latest example of America needing to invest in and modernise its electric grid. While utility companies are going to play a role in that, investors in utility stocks are addicted to the high-dividend yields that exist in the sector. So cutting dividends to invest more in infrastructure might make good long-term business sense for the companies but be resisted by their investor base.

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