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Billionaire investing success Warren Buffett does not like owning bonds at this point, and he thinks the average investor should avoid them as well.

The chairman and CEO of Berkshire Hathaway, major investment conglomerate, believes that individual investors should have plenty of cash on hand so they are comfortable just in case something unexpected happens.

He also believes that they should invest the rest of their money in stocks, even though the price of stocks has risen quite higher than they were years ago when the Great Recession first hit.

On Monday while giving an interview on CNBC, Buffett told the world that bonds are a terrible investment at the current time, and he also mentioned that long-term bond owners may see large losses once interest rates eventually rise again.

The Oracle of Omaha also said that stocks are selling for very reasonable prices generally even though the Dow Jones Industrial average is seeing record high levels, along with the S&P 500 index.

Buffett, 82 years old, also mentioned that he doesn’t have any plans to retire in the near future, and he also believes the efforts of the Federal Reserve, with keeping interest rates low, have helped the stock market. Income improvements continue to play a role for stocks as well.

Buffett is a continued fan of Federal Reserve Chairman Ben Bernanke, and he mentions that he believes bond prices are artificially inflated because of the stimulus that is ongoing from the Federal Reserve. The stimulus is $85 billion worth of bonds being bought every month, which keeps the interest rates at a low level. At this time, bond yields are near historic lows, and they move inversely to prices.

On Monday, Buffett gave interviews to Fox Business News and CNBC after Berkshire Hathaway’s annual shareholders meeting this past weekend. It was a star-studded event.

At the time of this writing, Berkshire Hathaway owns more than 80 companies and has large investments in IBM, Coca-Cola and Wells Fargo, as well as other iconic brands.

Buffett also reiterated his support of Jamie Dimon, J.P. Morgan Chase chairman and CEO. He said that Chase has the right person running the show, and he also owns the stock as part of his personal portfolio.

Buffett also believes that Berkshire Hathaway will own a stake in H.J. Heinz – the ketchup maker – forever, and he said that he didn’t have any problem taking on 3G Capital as a partner. They are the Brazilian investment firm that split the bill for H.J. Heinz. He also hopes that the Berkshire Hathaway stake in Heinz will grow as time goes by.

He was also questioned about the way the Heinz deal was structured. People wonder if the 50% split is a change in the way Berkshire Hathaway will invest and do business from now on. Berkshire Hathaway typically buys a company outright, and they let the company run without any intervention whatsoever.

3G Capital is not your typical private equity firm, said Buffett, since they put a large amount of their own money in deals, and they also run businesses.

Buffett even mentioned that Burlington Northern Santa Fe railroad’s traffic is picking up, but it’s probably going to haul fewer carloads than it did before the recent recession.

Burlington Northern Santa Fe “has been a terrific acquisition for Berkshire,” said Buffett.

BNSF contributed $798 million to Berkshire Hathaway’s $4.9 billion profit for the first quarter, which the company reported on Friday. Berkshire Hathaway’s profits rose by over 51%, beating last year’s net income of $3.3 billion by a wide margin.

The majority of the freight trains in the United States only run on diesel fueled engines. Recently, Burlington Northern Santa Fe Railway, owned by Warren Buffett and Berkshire Hathaway, will begin to test using liquefied natural gas (LNG) as a fuel source.

Burlington Northern Santa Fe tells us that it’s motivation comes strictly from the fact that liquefied natural gas produces much less greenhouse gases than does diesel. Nevertheless, it also happens to be 88% cheaper than diesel fuel, so I’m sure that’s another very favorable aspect of liquefied natural gas.

Burlington Northern Santa Fe’s CEO and chairman, Matt Rose, stated that “the use of liquefied natural gas as an alternative fuel is a potential transformational change for our railroad and for our industry. While there are daunting technical and regulatory challenges still to be faced, this pilot project is an important first step that will allow BNSF to evaluate the technical and economic viability of the use of liquefied natural gas in through freight service, potentially reducing fuel costs and greenhouse gas emissions, thereby providing environmental and energy security benefits to our nation.”

Prior to undergoing any actual tests, it is up to federal regulators to determine if the new LNG fuel tanks are safe. They will have to come up with new supply systems in order to deliver the liquefied natural gas to the various train depots. They would also need to train depot workers in how to properly use the fuel.

Burlington Northern Santa Fe has experienced a great benefit from the boom in producing oil domestically. Using the railways to transport crude oil around the country is becoming very popular. BNSF currently ships about 10% of all of the oil produced in the United States each day, and Warren Buffett tells us that “all indications are that BNSF’s oil shipments will grow substantially in the coming years.”

Berkshire Hathaway, whose chairman is Warren Buffett, recently saw their profits fall around 9% due to losses that they received from their derivatives portfolio. You must understand that the derivative losses are actually unrealized (meaning that the position hasn’t been sold yet) since they are long-term positions in European, Japanese and United States equity markets. The maturity dates on these derivatives are in 2018 or later. Buffett has been very outspoken about the issues going on with financial derivatives, and he also mentions that it’s not likely that he will add more to his derivative positions since they changed the way they do the financial accounting for these items.

Even though he doesn’t have any plans to purchase more derivatives, this is the typical type of position that you would traditionally get from a value investor like Warren Buffett. He’s expecting Japan, Europe and the US to see some growth throughout the upcoming years. One strategy that could be quite simple to do would be to purchase index ETFs, even though this is nothing new, or you might want to take a look at the two sectors below since Warren Buffett believes that future economic growth will fuel both of these industries where they will receive a big benefit.

Housing – as early as last month, Warren Buffett mentioned that he is increasingly optimistic about the US housing market overall. He understands that there is obviously still weaknesses, but he clearly believes that the housing market is going to rebound over the next few years (you have to remember that Warren Buffett is a long-term investor, and he rarely speculates anything three months or less).

The various real estate indices, which include the S&P/Case-Shiller 20-City, are all showing month-to-month growth consecutively after having such a prolonged drought. One of Berkshire Hathaway’s positions includes Clayton Homes, which is a company that insures, finances, builds and sells homes. Continued growth in housing would be a great way to stimulate the overall economy in the United States.

Buffett recently mentioned during an interview that he believes the financial issues in Europe are also having a negative impact on the United States, as well as weak residential housing holding back our economic growth. Recently Buffett has made it a point to bid to get large amounts of distressed loans in the housing market from the bankruptcy offering of ResCap.

If he were to win the bidding war, this will give access to a big portfolio of loans (around 4 billion worth) that has the potential to see some serious upside if the housing market is ever going to recover. So obviously you have to realize that Buffett believes that housing is going to recover, so he’s looking at this time right now as an excellent place to start purchasing these cheap assets.

Some companies that would definitely benefit from an increase in housing are Caterpillar and Wells Fargo. Right now, Wells Fargo is the second-largest position that Warren Buffett owns, and they are also the largest US home lender at this time.

Railroads – the next sector that would certainly benefit tremendously from a recovering US economy is the transportation section. Buffett and Berkshire Hathaway made the headlines in 2009 when they decided to buy out BNSF (Burlington Northern Santa Fe Corp.). This is actually the largest purchase that Buffett has ever made, and it tells you that he clearly predicts and believes that US economic growth will eventually come soaring back, and railroads and the freight business are going to benefit from it tremendously.

The United States produces many different economic goods that need to be transported, and railroads happen to be more efficient than the trucking business to move goods in large quantities across great distances.

The 2011 Berkshire Hathaway purchase of Lubrizol, which is a company that sells machinery and engine lubricant, shows us that the $9 billion that Warren Buffett spent was not in error since he believes that the usage of this lubricant is going to increase. This is often a sign that economic growth is in full swing. Lubrizol also happens to provide goods that they sell to emerging markets, and this demand is also expected to increase as well.

Recently, the transportation industry has undergone a change in which commodities it is servicing. Since natural gas has been a lot cheaper, and in more demand, the use of coal has become less and has slowed down. Coal is normally transported by railroads, and because of this the BNSF revenues were impacted, as well as the Union Pacific Corp. revenues too.

Even though the usage of coal has dropped, they have picked up other business in the area of crude oil, petroleum and shale. The shipments have increased dramatically, but the demand for coal is still a big driver for transportation, even though the increased demand for the shale products are seeing double-digit growth in the upcoming years and they will also diminish the coal demands which will allow the transportation industry to see some strong growth as the US economy begins to pick up again.

Some transportation plays that would definitely benefit from the shale demands and economic growth include the Union Pacific Corp. out of the Midwest, which is currently trying to take advantage of the demand for shale.

There are other railroad companies that may be worth looking at, but remember that not every railroad has access to the low-cost coal out there that they could transport. And the continued drop in coal’s demand is going to obviously impact the railroad companies that are transporting the expensive coal right now.

The 2009 buyout of BNSF was a good move and Buffett deserves praise for it. BNSF has access to clean and cheap coal from the Powder River basin, and they also have access to numerous shale fields which is going to make this a very profitable investment.