It is no secret that Warren Buffet, or more accurately his holding company, Berkshire Hathaway (BRKA: BRKB), has been amassing a significant stake in Occidental Petroleum (OXY). Their stake is big enough to be subject to disclosure requirements, so it is public knowledge that they now own around a quarter of the company. Buffet has said, though, that they are not going to take outright control of OXY. That suggests that a major impetus for the stock’s rise is about to go away, but that doesn’t mean that those who hold it should sell, nor that it isn’t worth buying at current levels.
Buffets’ reason for not pursuing a controlling stake speaks volumes. He believes, he says, in the company’s current management, which is, in part, why he has been buying. He sees no need to take over completely and make changes. As much as it can be when you own 25% of a company’s stock, this is a passive investment. That is a part of the overall strategy that Buffet has been using for years, a strategy that has made him a billionaire.
He has said many times that there is no magic or secret sauce behind his success, nor does he believe he is just smarter than everyone else. What he does, as he frequently tells us, is buy stock in well run companies with a time horizon measured in decades, then rides out market fluctuations, occasionally trimming positions at times of strength, then buying back on significant drops. That isn’t a revolutionary idea. It is, logically, what we should all…
It is no secret that Warren Buffet, or more accurately his holding company, Berkshire Hathaway (BRKA: BRKB), has been amassing a significant stake in Occidental Petroleum (OXY). Their stake is big enough to be subject to disclosure requirements, so it is public knowledge that they now own around a quarter of the company. Buffet has said, though, that they are not going to take outright control of OXY. That suggests that a major impetus for the stock’s rise is about to go away, but that doesn’t mean that those who hold it should sell, nor that it isn’t worth buying at current levels.
Buffets’ reason for not pursuing a controlling stake speaks volumes. He believes, he says, in the company’s current management, which is, in part, why he has been buying. He sees no need to take over completely and make changes. As much as it can be when you own 25% of a company’s stock, this is a passive investment. That is a part of the overall strategy that Buffet has been using for years, a strategy that has made him a billionaire.
He has said many times that there is no magic or secret sauce behind his success, nor does he believe he is just smarter than everyone else. What he does, as he frequently tells us, is buy stock in well run companies with a time horizon measured in decades, then rides out market fluctuations, occasionally trimming positions at times of strength, then buying back on significant drops. That isn’t a revolutionary idea. It is, logically, what we should all do, but it takes a lot of confidence and enormous discipline to actually do it.
Still, when it comes to OXY, the important part here is that Buffet is a long-term investor. In some ways, an oil and gas company may seem like an unlikely investment for someone looking years or even decades ahead. Aren’t we all told frequently that fossil fuels are a dying industry? That there will be no such thing in just a few years? Clearly, Warren Buffet thinks otherwise. He, like me, has probably been hearing that for a couple of decades now and doesn’t believe it has any more validity now than it has before.
What he also realizes, though, is that the efforts to get to that day when oil no longer powers our daily lives create some interesting opportunities, and Occidental is heavily and increasingly involved in one that could be extremely lucrative. Last month, they announced that they were acquiring a company called Carbon Engineering Ltd. They are specialists in direct air capture (DAC), the process of taking the carbon that is responsible for climate change out of the atmosphere, then storing it underground where it can do no harm.
Carbon capture has been in the news this week for another reason, too. Amazon (AMZN) announced that they are, like Microsoft (MSFT), investing a large amount in the technology. They aren’t doing it themselves, though. They are buying carbon credits from 1PointFive, which happens to be the subsidiary of OXY that just bought Carbon Engineering, as part of their drive to become carbon neutral. To cynics, it may seem that being responsible for carbon emissions and then buying credits from a company that removes them from the atmosphere is a dubious way of doing that, but prioritizing optics is nothing new in business. And, as long as that continues, Occidental, who have been investing in DAC for years, can benefit.
In that light, Buffet’s interest in OXY makes more sense. Far from being in contradiction with his very long-term strategy, it is a part of it. Occidental can be simultaneously part of the problem as environmentalists would see it, and part of the solution. More importantly from an investor’s perspective, they can profit from both sides of that for decades to come.
Warren Buffet can be called a lot of things, but stupid isn’t one of them, and if accumulating a long-term stake in OXY is good enough for him, then it is good enough for me too, and probably should be for you.
