Warren Buffett, the world’s second-richest person, staked a $34 billion (£21 billion) bet on the recovery of the American economy on Tuesday.

His Berkshire Hathaway investment vehicle is buying America’s second-largest railroad, Burlington Northern Santa Fe, and is preparing to pay much of the price in cash. It is Mr Buffett’s biggest deal in his 46 years at the helm of Berkshire and one of the world’s largest this year.

“The rail industry has changed in its position in the last five to ten years and it’s even more vital to transportation in this country than it was ten years ago,” Mr Buffett said.

Last week the United States officially emerged from recession in the third quarter and Mr Buffett suggested that the low point had passed.

By buying into the freight rail industry at a low point in its business cycle, he is gambling that the sector will pick up as the economy continues to recover. Although figures from the American Association of Railroads indicate that rail traffic is 15 to 18 per cent down on the year, industry experts believe that it will pick up and say that rail stocks are undervalued.

Berkshire is splitting the $34 billion cost of the 77.4 per cent of Burlington it does not already own between cash and shares. The price is a 31.5 per cent premium on Burlington’s closing price on Monday. Berkshire’s board also approved a 50-for-one split of its Class B common stock, bringing the price down from $3,600 to about $60 a share.

It will fund the deal with $8 billion from its own resources and $8 billion borrowed from banks. After the deal, it will still have $20 billion in cash.

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