No. of Recommendations: 13
"I can see only two plausible explanations.
* One is that Mr Buffett had a position size in mind and, having reached it, he stopped buying. The fact that the price got lower later is just transient bad luck.
* The other is the more obvious interpretation: he is no longer as keen on the firm as he was, for some unknowable reason. Not put off enough to sell, but put off enough not to want more."
Similar to your explanations:
- The buying of OXY stopped in a similar timeframe to OXY's purchase of CrownRock for $12.4 Billion. The timelines do not match up precisely but are close. Maybe Buffett didn't like the merger (or the price paid) so he soured on the company and stopped buying. Pure speculation on my part and it definitely could just be co-incidental.
- The size thing. I know many here have asked why Buffett just doesn't buy all of OXY thinking it would use up some of the cash pile. He has stated that the reason he doesn't buy the whole thing is that he wouldn't know what to do with it. In my opinion what he means it is very hard to have a big multi-billion-dollar oil company be private due to the nature of the oil business. Oil companies need to regularly refresh their inventory of oil in the ground. They do this by buying the oil reserves of other companies. So a large oil company needs to have access to equity markets to issue new shares to take over other companies reserves. Obviously this could be done with just all cash (or debt), but that changes the cost of capital calculations and makes the deals much less economically interesting. Also, some takeover candidates do not want cash and prefer shares for tax reasons. So if Buffett bought all of OXY he would have two choices: let it sit in the corner and run off all of its oil reserves and take the cash and close down the company when they are gone. That might be profitable, but it would waste the intangible expertise of the company that is also implicit in the price paid. The other choice would be to occasionally make huge cash infusions into the company so they can buy more reserves (hopefully at prices that generate huge cash returns) while milking all of the cash out of it. Neither choice would be that economically exciting. Plus the company would miss out on purchasing oil reserves from companies that do not want cash and prefer stock. Not having access to public equity markets just takes away an option for the oil company.
So if Buffett clearly doesn't want to buy the whole thing, but he wants to buy a lot of it, how much can he keep investing before owning too much (also realizing he might own more in the future through the warrants)? I think Buffett might have hit what he thought was the limit. Especially considering many of the shares of OXY that he doesn't own are locked up by other institutional investors and do not trade much.
