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Saturday, August 20, 2022

Buffett, OXY, Memes And Moats -- August 20, 2022

Yesterday I posted this:

August 19, 2022: FERC gives green light to Berkshire Hathaway to buy up to 50% of OXY. A reader asked about my thoughts. My reply at this post.

At that latter link, I explained why the OXY / Buffett deal was a one-off and occurring in a vacuum

Now, this morning a reader sent me a twitter link which articulated is so much better. This is why investors / traders are not jumping into oil companies:

There are two parts to that tweet:

  • first, the meme, that there is a "global shift from fossil fuels"; and,
  • second, a new pipeline / new LNG export terminal "would not pay for itself in 200 years."

Wow, think about that.

The first takeaway, of course is that investors/traders repeat that meme daily, "there is a global shift from fossil fuels." They see fossil fuels as a dead-end investment.

That's why investors / traders / talking heads on CNBC are not talking much about oil. 

[That's not true, of course: China, India, Africa -- are not shifting from fossil fuels; and even more ironic, countries like Germany are switching back to coal.]

In 2Q22, Warren Buffett bought more CVX and more OXY, and since then indications are he plans to buy more OXY. 

The takeaway for me, is that at the moment, it does not make sense to invest in / accumulate shares in oil companies betting on stock price appreciation. The only reason to invest in / accumulate shares in oil companies is for the dividend policy of the company. No investor should expect price appreciation in the oil sector.

Companies like PXD and DVN have markedly taken to focusing on dividends. One now gets a better idea why they did that. Without the dividend policy, would investors / traders invest in a dead-end industry?

Investing is interesting: back in 1984 when I first started investing and started investing in energy companies I anticipated I would have problems with fossil fuel -- when not to be left with a gazillion shares in a dead-end industry.

Buffett certainly does not see oil and gas as a dead-end industry. 

The second takeaway: oil and natural gas companies have a huge moat.

  • ESG
  • blocked pipelines
  • bans on drilling on federal land
  • no new refineries, ever
  • huge CAPEX

Buffett likes companies with huge moats.

But he's in the minority among today's investors and traders.

SNOW. I don't see the moat. I see a lot of competitors.

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All my posts are done quickly: there will be content and typographical errors. If anything on any of my posts is important to you, go to the source. If/when I find typographical / content errors, I will correct them.  

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