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Considering these Dataroma Super Investors all have stakes with a basis higher than today's $53'ish price, what would be the permanent harm in dipping my toe and starting a position with a 5 year minimum horizon.

https://www.dataroma.com/m/stock.php?sym=OXY

I'd appreciate any bearish sentiments to talk me off the ledge.

Thanks everyone and have a great day.

m

The price of OXY has been all over the place with their financial difficulties of the past, but if you plot the stock price vs oil price for the last two years of relative corporate stability, you'll see a very close match. I think this will continue going forward. If you think long term oil prices will have an upward trend, the stock would be a good buy, but then if you really know the future, oil futures would be an even better buy.

I worked for some of the the biggest oil companies who could afford the finest analysts and had the best data available. The were often wrong in their oil price projections. Very often very wrong.

The price of OXY has been all over the place with their financial difficulties of the past, but if you plot the stock price vs oil price for the last two years of relative corporate stability, you'll see a very close match. I think this will continue going forward. If you think long term oil prices will have an upward trend, the stock would be a good buy, but then if you really know the future, oil futures would be an even better buy.

I worked for some of the the biggest oil companies who could afford the finest analysts and had the best data available. The were often wrong in their oil price projections. Very often very wrong.

Really good observation.

I've also been through the mill on that. XOM gave up on forecasting oil prices a long time ago.

Best I can guess, they now plan based on $60 (real) for Brent crude to develop projects. They test against $40/bbl and $80/bbl as sensitivity cases. They test their outlook versus such case - probably also assuming cyclic behavior for long term projects. Most big O&G projects operate through decades. Unconventional production from the Permian and other tight oil projects have more control to adjust to ups and downs on oil prices.

But XOM also insists that they have a competitive advantage against all cases. They want to be the lowest cost producer in all cases. That's who wins in a competitive market. They can't beat Saudi and Russia, but they can beat their competitors outside OPEC. And OPEC suppliers have the same need for cash as Saudi and Russia.

XOM recently commented that 90% of their upstream investments in the 2024-27 period yielded a 10% return at $35 (real - inflation adjusted) oil prices. But they still have older, conventional, operations. Their sensitivity depends upon their age - i.e. how long does it take to recover the up-front investments? OTOH, their downstream businesses benefit from lower oil prices. (See below.)

So I would ask potential OXY investors to consider their competitive position against similar outlooks. Maybe test versus against Exxon and Marathon?

OXY recently said that they had a "breakeven" price now of $40 (Brent or WTI) crude prices. I assume that covers their capex (and dividends?) at such prices. So maybe have good downside protection to cyclic downturns - but not to profits?

OXY does not have a downstream refining and petrochemicals presence. Their chemicals business is based on chlorine chemistry so it is largely independent of oil prices. Ditto is their mid-stream business which is based on throughput at a long term price. So a relatively small part of their business is somewhat independent of oil prices. But refining and petrochemicals do better (lower feedstock costs) for majors like Exxon and Chevron when oil prices drop. So that is somewhat of a buffer against oil price swings.

OXY is probably more subject to oil price swings than the majors. Buffett himself said it was a bet on oil prices.

That's a very complex world - that nobody really understands or can forecast. My view is that the economic needs for cash for Saudi and Russia are probably the biggest drivers of prices. But geopolitics also enter into their decisions. They can't control demand, but they can really influence supply. Offsetting that is that non-OPEC suppliers benefit when Saudi and Russia cut back production to keep prices up.

My thought is to not just follow Buffett and Guru's on OXY but also test them against alternate investments - both larger and smaller than OXY.

I bought some
Warrants yesterday. Not expert on oil prices, but i thought if a WW3 starts, oil will be higher. Might be even better than buying defense companies. It’s a good hedge against hell broke loose. OXY’s oil is in America, and nowadays we get our plastics from China.

Thanks Texirish. Speaking of alternative O&G investments, do you perhaps have any overall or specific thoughts on those companies where refining is their main focus? Seems like hardly anyone is eagerly building more refineries going forward. Many Thanks!

I have been buying OXY this year and it's now one of my bigger positions outside of Berkshire and FTSE 100 index. I am not in a position to be investing in oil and do not understand it they way Texirish does for example, or Buffett obviously. All I know is Buffett and Munger like oil and I'm happy to copy that move. I appreciate it is a bet on oil prices and that is probably unknowable.

There is a nice video compilation online of all of Buffett and Munger previous oil comments, worth watching.

From a my own no nothing perspective:

I believe OXY is between 7 and 10 times earnings at current oil prices. That feels like pretty good value.

If I'm going to own an oil company, I want it to be a US company. (Look at small UK oil companies since the Labour government came to power - they have been hammered - as the government decided to cut them off at the knees to help with the environment. Which is an odd decision, as the UK will just have to buy more foreign oil and the reduction in supply form the North Sea will have zero impact on global oil prices).

In the very long term as Munger has said many times - the world needs oil. It's used for almost everything and it's not going away for centuries. The supply of oil is finite and for environmental reasons there will be less drilling. It has also forced the prices of oil companies down as pension funds etc are told not to own it. My understanding is that Buffett and Munger expect higher oil prices in the very long term. I like that idea and how it fits will my preference for investing in things I can just sit back and never sell.

I should know more about Occidental's reserves - just because oil will be around forever, they need to own a lot of it. My understanding is that Occidental owns a lot of oil and has been adding to their assets and they have engineering skills to extract it. I expect others and Buffett know this to be the case but I don't. I am just copying Buffett.

Occidental also has to stay in business for the long term. They have done a lot of deals over recent years and have debt but Buffett clearly likes management's approach to capital allocation (e.g. clear the debt, pay dividends and buy back stock at good prices and will not do any wild exploration type work).

Obviously, Buffett's only to major investments in the past few years were buying Berkshire when it was cheap and buying Occidental. He is selling a lot of other things. I wonder if he sees Occidental as a hedge against higher oil prices for Berkshire. Indeed I am aware that even if my own purchases of OXY work out great, it may be that I am paying much higher living costs. There is also a possibility that the geo political situation gets out of hand. If Israel attacks Iran's oil assets, or nuclear facilities, that may not be good for any of us. If the US and UK and Saudi Arabia get drawn into a war against Iran and its allies and meanwhile China takes Taiwan, while its allies are busy in the Middle East and Ukraine, we might see much higher oil prices much sooner than we think.

Lots of outcomes possible but OXY looks like a good bet compared to other things currently. Although I am very aware that Buffett and Munger both considered themselves not to have been good oil investors. I imagine that's because, oil prices, like the economy and interest rates are impossible to predict.

Meanwhile there are people out there buying shares in companies like Microstrategy! OXY does not seem like a huge gamble in comparison.

Does the fact that Buffett/Berkshire was not adding to the position when it got to $50/share recently give you any pause with regards to buying OXY? If you liked it at $59 you gotta love it at $50, no? With regards to BRK, apparently not.

Does the fact that Buffett/Berkshire was not adding to the position when it got to $50/share recently give you any pause with regards to buying OXY?


It gives me some pause.

We don't know why Buffett has stopped - it could be that he just decided to go up to a certain percentage, or a certain round number of shares, although I don't see anything round in the current numbers, which are 255,281,524 shares and warrants to buy another 83,858,848.81 shares for $5b, for a total of 339.2m shares. This would represent 33.91% of Occidental shares, also not a round number.


Or it could be that he has some formula based on current oil price and expected future oil prices, and the drop in oil prices from about $80 at his last purchase in June to under $67 a few days ago (although back up to $74 in the last few days) has reduced the attractiveness of OXY shares.

Or maybe he is just shifting the cash accumulation strategy into high gear, as a major correction looks more and more likely.

Or one of a million other reasons, including he has just changed his mind about whether this is an investment he wants to make into a big bet.

However, the one thing that does seem clearer is that he is not aiming to take a majority stake in the company, or even make a purchase bid for all the shares. If that were his strategy, one would think that he would have taken advantage of the lower price and bought as much as he can. So if a take-private scenario was part of your investment rationale, as it was part of mine, then I think that part has become less likely.

dtb

If WEB changed his mind about OXY, I think he might be selling, like what he’s doing with Apple and BAC. He’s not going to anchor his precious views and keep holding the stock.

More likely he has reached his position limit, or maybe he got some insider information so he can’t trade any more? What if a buyout is being negotiated or discussed by the board?

Good discussion re "coat tailing" Mr. B.

My approach is to factor the various uncertainties into the size of my OXY position.

This might be a good strategy..and it might not.

My personal experience with copying Buffett..is underwhelming. Certainly less than buying an index.

Berkshire works IMO as a complete entity, stock selection of which works collectively as an entire package. Within the context of an overall entity more than twice that size. See where I’m going? Well, I’ve been there. I ain’t going back…here’s why”

I followed Buffett into Guinness and it was a slight loser. Then I followed him into his BIG PLAYS..that must be the answer, right?so I followed him Into Wells Fargo..it was a market performer at best.

But my FAVORITE Buffett follow is one that might never be topped:

A stock in which Buffett bought every share he legally could. Where Munger at Wesco bought every share HE legally could AND where Peter Lynch, at the height of his success..bought every share HE legally could.

Would you like to do something Buffett, Munger, and Lynch all WANTED to do but couldn’t (all limited to 4% ownership)?? Ya, I think so.

So I bought Freddie Mac. Good news is it paid for my new home (nice irony!) And so glad I liquidated the stock for that purpose. It proceeded to decline by 95%! (Buffett & Munger also got out long before but not to buy homes lol),

Lesson. Buy Berkshire, hold Berkshire. Don’t cherry pick the pieces. Most of them are very very ordinary. It’s extraordinary only in its ENTIRETY. Most of its stocks are so so. A very few go through the roof. THAT equals extraordinary performance.

A good summary of reasons not to take a flyer on OXY.

What tipped the scales for me in the other direction was being able to take a modest position on a nice dip.

I'm not a fan of coat tailing. We can see that Buffett is entering, and we can get about the same price as him currently. That's good and fairly rare. But as we've seen in this thread we're not entirely sure why he's entering. At some point he is likely to exit. When he exits, it is likely we won't know why, we won't know he exited until after the fact, and it is possible we won't get the same price.

That's a lot of plates to spin. Or we could just let the chairman spin the plates.

"(Look at small UK oil companies since the Labour government came to power - they have been hammered - as the government decided to cut them off at the knees to help with the environment. Which is an odd decision, as the UK will just have to buy more foreign oil and the reduction in supply form the North Sea will have zero impact on global oil prices)."

From memory, and happy to be corrected if I'm wrong, I think the UK buys foreign oil anyway. The oil produced locally isn't used domestically but itself sold on world markets. This maybe because it is a thicker oil than what is used in the UK(?). During the energy price spike a couple of years ago there was some talk about increased production not being used here.

Appreciate the rational thoughts.

I agree, coat tailing isn't close to study and arriving at ones own conclusion. Having said that I didn't just wake up with the idea. But, I pulled the trigger and built a quick 1% position @ $52.99 .

It wasn't just WEB that shares were available less expensive to, but also:

Prem Watsa
Li Lu
Dodge and Cox

So, I guess I'll sleep (well or not) in good company.

I'll check back in a few years.

m

coat tailing usually don’t work no matter who you follow. But following Buffett usually has the least downside when the pick is wrong. Buffett’s picks are mostly low PE stocks— by definition has low expected future returns— most of them indeed so, but some will do well and when they are not , you can usually get out without losing much.

Buffett’s picks are mostly low PE stocks— by definition has low expected future returns—

That presumably should be corrected to read:
Buffett’s picks are mostly low PE stocks— by definition has low expected future growth rates, not low future returns.

Low PE stocks have high current returns. To generalize, their future earnings are typically assumed to be flattish, so future returns are also fairly high on purchase price, just not rising fast or far. WYSIWYG earnings yields, more or less.


Incidentally, Berkshire's large purchases are in any case not usually at super low P/E ratios.
Consider BNSF at around 20 times then-current owner earnings, and Precision Castparts at 22.9 times trailing EPS.
Apple was neither wildly cheap nor wildly expensive when the big buying took place at around 14-17 times then-current earnings.
OXY's ten year average earnings per share in the last decade are actually negative (around -$0.66), so that would correspond to an infinite P/E ratio : )

Jim

I was just having a look at coca cola too and surprised to see that in 2010 it was $2.53 per share and for 2023 $2.47, also in ref to the nestle discussion on the falling knives where EPS hasn't grown much. KO share price in 2010 was in the low 30s compared to 70 now.

I was just having a look at coca cola too and surprised to see that in 2010 it was $2.53 per share and for 2023 $2.47, also in ref to the nestle discussion on the falling knives where EPS hasn't grown much. KO share price in 2010 was in the low 30s compared to 70 now.

2010 was an exceptional year for Coca Cola. Up until 2010, KO never earned over $10B, but suddenly in 2010, it experienced over 60% earnings growth and earned $14.97B. After 2010, earnings settled down for a decade or so. The next time it reached $14B was in 2021, 2023, and 2024 (est).

https://companiesmarketcap.com/coca-cola/earnings/

Thanks, I was looking at macrotrends and the chart only went back to 2010.

What was the eps and price when WEB first acquired coke? I think it was late 80s? Do you have EPS growth figures for that era over the next decade.

And previous decade*

Buffett acquired Coke from 1988 through 1989. The stock split in 1990 and 2012. Adjusting for the splits, I THINK Coke earned 32 cents in 1988 if my split adjusted math is right :). Buffett truly went all-in on Coke at the time, buying more than a $Billion of the stock.

Coke was one of the few companies in the world with a true global sales and distribution in even poorest of nations. Moats? Buffett said Coke was one of the most popular WORDS in the world, enjoyed a true duopoly with Pepsi in the US in terms of shelf space. And “lack of excess margin” ironically was the true MOAT. Buffett said Coke made a penny a can. Added something to the effect that if some one dropped $100 million in your lap—the last thing in the world you’d do would be to try to build a global distribution soft drink company to try to undercut Coke’s 1 penny a can profit. That margin of safety almost assured that Coke could pull the pricing lever when it had to. Which it has.

Buffett saw a half century, at least a clear quarter century, runway for Coke. Time has proven him 100% correct.

Buffett saw a half century, at least a clear quarter century, runway for Coke. Time has proven him 100% correct.

sure. that's one of his better pick. it slightly outperform the S&P 500.

Ok, so the share price was around $3 in 88/89 so 10 x earnings. The share price was $40 a decade later so a 12 multiple of purchase. These are the ones we're all looking for, sounds similar to Apple actually.

Looking at the chart and as has been previously discussed here it would have been good to cash out then, also reaffirms my view of a 5 year outlook on a company, if it turns into a 10 year opportunity fantastic but you can't see out that far.

you can't see out that far

To look out far you need a moat as well as an ecosystem for the business to build upon. That's just the prerequisite. Then you monitor over time if the moat and the ecosystem still hold. Those should be properly reflected in consistently high ROE and earning growth. Think about the business in the context of future opportunities and challenges, and whether the executives' perspectives are honest and sensible. Never sell if all continue to look good.

Definitely, that's what Buffett teaches us, but as a private investor you wouldn't want to hold coke from 98/99 to now for a compound 2.26% return (excluding dividends) $40 - $70 over 25 years.

Getting back to OXY, I think he's looking at it on the basis of free cashflow and share buybacks and is taking a massive bet on this as management are on board and will allocate capital in the most efficient manner. I saw an analysis of Chevron for example which showed they performed most of their buybacks over the last decade or so when the shares were at their most expensive.

He doesn't need to buy the whole company, if he has 40% and they buy back lots of share over the next decade his ownership will increased markedly.

Buffett acquired Coke from 1988 through 1989. ...
Buffett saw a half century, at least a clear quarter century, runway for Coke. Time has proven him 100% correct.

His pick was outstanding, but I'd say it was outstanding for only a decade or so.

From the 10 year mark at around end 1998, Coke's real EPS are up inflation + 1.75%/year. Yuk.

Earnings were a little above trend at that point, so it's a slightly unfair baseline to pick.
Starting from 2001 Q1, which was pretty much smack on the trend of real earnings excluding one-time items, rolling-four-quarter EPS up inflation + 2.44%/year.

For comparison, S&P 500 smoothed real earnings are up inflation + 3.72%/year in the same period, quite a lot better.


So far this millennium the stock pick, evaluated as a selection of a high quality business rather than based on current period stock price return, has been worse than the average pick from a monkey with a dartboard. Coca Cola is is ticking along and won't go bust. But it's not thriving, and it definitely hasn't been for a quarter of a century.

Heck, a 25-year T-bond bought 25 years ago at the 10th anniversary of the Coke purchase and held to maturity now would have returned not all that much less than Coke's real total return without valuation multiple changes. (inflation + 3.72%/year for the bond, maybe inflation + 5.5%/year counting dividends for Coke if it had always traded at a constant multiple of trend real earnings)

Jim

It’s a permanent holding.

And the business continues to thrive 36 years later. Still generating cash, still paying Berkshire annual RISING streams of income.

That’s what Buffett wanted. Markets will do what they do and mark how they mark. Those bigger dividend checks every year are REAL MONEY and Coke’s growing net worth is all that really matters. All that one can ask. It’s all one could rationally forecast and expect.

And the cash Coke generates for Berkshire each year gets deployed in the most desirable option available at THAT time to Berkshire. In options far more attractive presumably that Coke in 2002 or Coke on 2019…Just like See’s cash, etc. Those are more valuable dollars than they appear.

It’s a permanent holding.

And the business continues to thrive 36 years later. Still generating cash, still paying Berkshire annual RISING streams of income.

That’s what Buffett wanted. Markets will do what they do and mark how they mark. Those bigger dividend checks every year are REAL MONEY and Coke’s growing net worth is all that really matters. All that one can ask. It’s all one could rationally forecast and expect.


I would say respectfully that that is not all one could ask for.

First, Buffett himself has said it was an error to not sell when it was at 50x earnings 25 years ago (1998): "You can definitely fault me for not selling the stock." https://www.youtube.com/watch?v=oWpXM3sVAek. (That was in 2006. To be fair, in he has also said (in 2015) that he would probably never sell: We own 400m shares of Coca-Cola stock, we've never sold a share, and I wouldn't think of selling a share." https://www.youtube.com/watch?v=4p1_5bZ8I4M Hmm, seems like he did once think about it...)

Second, the point is not that markets are not behaving properly - it's that Coke's earnings have not increased very much. Markets have quite appropriately not sent the price of shares up more than that small increase in earnings, and have corrected the overpricing that Buffett regretted missing.

Third, the fact that the dividend checks get bigger every year and that they are well reinvested elsewhere doesn't entirely compensate for the fact that it has been an unrewarding holding for over a decade. Another holding with bigger increases in dividend checks and more money to reinvest in other investments would have been better.

Of course there are real permanent holdings, like See's, that may have had earnings that have not increased very much, but these are different, since they allow Berkshire to control the allocation of capital and, for a company that is not growing, reallocate ALL the earnings, not just the percentage that are paid out in dividends. Admittedly, Coke appropriately pays out most its earnings as dividends, but Berkshire pays a lot more tax on these payouts than they would for a fully owned holding.

Fortunately, the sales of much bigger stock holdings like Apple and Bank of America suggest that just Berkshire now believes that no stock holding is so big that it can't be sold.

dtb

Just to offer my perspective, I think another way to try to understand the coke investment and its favored status at Berkshire is to look at what is funding it - float.

Munger once said something along the lines of “buying stock x as a private investor is not the same as buying it financed by zero per cent cost float”.

I take that to mean some combination of lower hurdle rates and less appetite for broader distribution of possible outcomes even if central expectation is higher.

If the insurance business wasn’t so over capitalized that same money would probably be invested in bonds.

Definitely, that's what Buffett teaches us, but as a private investor you wouldn't want to hold coke from 98/99 to now for a compound 2.26% return (excluding dividends) $40 - $70 over 25 years.

If you talk about 20/20 vision looking back, I have much better choices. It's not helpful to just cherry pick 1 stock afterwards and not considering the losing investments in the portfolio as well.

Personally I did outperform Berkshire by a nice margin over 5 and 10 years (perhaps even longer but I didn't checked). As of end of Sep, my 5 years' return was 25.2% vs S&P 500's 16.0%. I am talking about my concentrated portfolio, not a single stock. And that's an after-tax return under my tax regime.

Definitely, that's what Buffett teaches us, but as a private investor you wouldn't want to hold coke from 98/99 to now for a compound 2.26% return (excluding dividends) $40 - $70 over 25 years.
...
If you talk about 20/20 vision looking back, I have much better choices. It's not helpful to just cherry pick 1 stock afterwards and not considering the losing investments in the portfolio as well.

It's certainly true that it's not fair to say that a stock pick was a poor one because with hindsight some other stock XXX has done so much better. Amazon, Tesla, whatever.

However in this case I think it's pretty fair to conclude that it really has been a poor decision to have been invested in Coke (the business, not just the stock) for the last 25 years, period. That's because even a randomly selected stock would probably have done better. Not better in market price, and not because Coke was very richly valued at the start, but simply in greater growth in value per share. A share of the average middle-of-the-pack biggish US company rose in value a lot more than a share of Coke did...Coke's underlying business has stagnated. (real total net income the same in 2015 and 2023, neither year unusually good nor unusually bad). Real EPS rose solely because of shrinking share count, aided in large part from doubling debt, a trend which may have a natural end.

Buybacks are nice, but...
Remember that earnings can be used for increasing future earnings per share, or can be used as owner earnings, but a given dollar can't be both. It's either a firm with very low but slowly growing owner earnings, or a firm with somewhat higher but completely flat owner earnings.

A rational expectation of the real total return pre-tax for Coke shares in the next 10 years starting from here might be in the vicinity of (say) 4%/year, or $1.1bn/year. That's arrived at as (generous) 2.5% trend real EPS growth, 2.5% dividend, minus 1%/year for multiple compression. Conversely, if the shares were all sold today, the net after tax proceeds would be about $22.1bn. So, to do better, any alternative investment would have to offer inflation + 5.0%/year on the after-tax pile (and big enough to soak up $22bn, and as steadfast as future Coke). That doesn't seem an impossible hurdle...surely such opportunities arise from time to time?

Suggesting things to head office is a waste of time, but personally I'd rather we put half of the $22.1bn after-tax proceeds into buying 29% of Hershey. Coke is at $69.01 with peakish EPS around $2.50 having risen around 2.5%/year (nominal) in the last 10 years, Hershey at $187.53 with peakish EPS around $10 having risen around 9.5%/year (nominal) in the last 10 years. Check back in 7-10 years : )

Jim

Jim-
Certainly no disrespect but you and Mr. Buffett seem to look at KO differently. What do you think Mr. Buffett likes so much about KO for him to make it a permanent (at least so far) holding? Obviously, there is something that he finds attractive for him to have initially invested and never sold a share.
He has sold solid chunks of AAPL and BAC but KO remains a stalwart holding.
I'm guessing it's maybe the moat, solid free cash and a dividend that grows every year, all great qualities in a company.
Certainly, he looks at the financials and sees that growth is anemic but yet no selling of shares.
Maybe it comes down to this quote by Mr. Buffett:
"I'd rather be certain of a good result than hopeful of a great one." But is it even a good one??
As a small aside when I went to the AGM in 2001 someone from the audience asked him why him why he didn't sell KO back in the late '90's given its very lofty valuation. His answer was (paraphrasing):
"When you are the largest shareholder, and you sit on the B.O.D. it's just not that easy to sell shares..."
But that was 23 years ago, and it has been quite a few years since Warren, or his son Howie has served on the board.

I'd rather we put half of the $22.1bn after-tax proceeds into buying 29% of Hershey.
.... Check back in 7-10 years

Hershey is chocolate, right? Chocolate which is liked by Americans - - - and ONLY by them! How much longer? In 10 years? Maybe. Maybe not.

Coke is everywhere. Europe, Australia, Ko Samui, Bali, Seychelles - - - you name it, Coke was and will be there in 10 years.

Longterm predictability means a lot for Warren.
Under this aspect swapping Coke for Hershey would be a mistake - - - independent of the outcome - even IF Hershey 10 years from now in hindsight might have been the better investment.

HSY has been struggling for almost a year after a steep slide. What's the catalyst to finally turn it around? I don't see Berkshire buying a (maybe) turnaround.

> "What do you think Mr. Buffett likes so much about KO for him to make it a permanent (at least so far) holding?"

I'm certainly no Jim, but I think Buffett has a gut preference for things that aren't complicated. You want a soda and you like the taste of Coca-Cola, and you buy a Coca-Cola. It can fall out of preference, but it has an element of the Mitch Hedberg bit on the donut, "I bought a doughnut and they gave me a receipt for the doughnut; I don't need a receipt for the doughnut. I'll just give you the money, and you give me the doughnut, end of transaction. We don't need to bring ink and paper into this. I just can't imagine a scenario where I would have to prove that I bought a doughnut.".

They're good at what they do, have a durable moat and durable brand equity, and are managed well. You could probably use cans of them for currency in prison if cigarettes disappeared.

Back to OXY, do you guys buy the warrant or the stock?
The warrant is cheap, without 0 premium and providing leverage (though losing the dividend). However my question is when the warrant expires in 2027, if I exercise the warrant, will tax will be due immediately or will I be able to keep rolling forward the potential long term capital gain?

Based on previous discussions, it seems for US investors tax will be due immediately upon warrant exercise. In that case, would it make more sense to hold the stock instead?

Based on previous discussions, it seems for US investors tax will be due immediately upon warrant exercise.

Is that true in the US?
In Canada the exercise of a call option does not create a taxable event, or so I have been told.

Jim

Back to OXY, do you guys buy the warrant or the stock?

I buy the stock (usually via selling put options repeatedly until they get exercised and assigned to me).

The warrant is cheap, without 0 premium and providing leverage (though losing the dividend).

It's "cheap" for 2 reasons:
1. The leverage can also work against you. Sometimes dramatically - for example, what if between now and August 2027 oil crashed to $25/bbl? And OXY drops to 20? Then the warrant is worthless, and all your capital invested goes to zero. Even if OXY drops to 30, it'll only be worth about $8, or a 75% loss of capital.
2. As you mentioned, no dividend.

If you want optionality, there are plenty of Jan '27 options (and option combinations) available right now to play with.

if I exercise the warrant, will tax will be due immediately or will I be able to keep rolling forward the potential long term capital gain?

I normally would assume that it would be treated like an option exercise. After you trade the warrant for the stock shares, your basis would be adjusted similarly (warrant price plus strike price).If you buy the warrant at $32 now, and exercise it in Aug '27 for $22, then your basis would be adjusted to $54. But with a quick google search, that assumption appears to be wrong. Apparently, you are taxed like a NQSO instead, so the "bargain element" becomes taxable immediately. So if you buy the warrant now at $32, and exercise it in Aug '27 for $22, and the stock is $70, then you have an immediate capital gain of $70 - $22 - $32, or $16, and then your new basis is $70. That may be logical because the company issues new shares in exchange for the warrant.

If you want optionality, there are plenty of Jan '27 options (and option combinations) available right now to play with.

And they are incredibly cheap. The DITM calls on XLE you can get 2X leverage at under 1% implied interest rate.

But who knows what the price of oil will be 2 1/2 years from now. Maybe a crash, but most likely not.

“ And they are incredibly cheap. The DITM calls on XLE you can get 2X leverage at under 1% implied interest rate.”

Partially due to the relatively high dividend yield of xle I believe

The DITM calls on XLE you can get 2X leverage at under 1% implied interest rate.

This is why I am not selling any XLE calls lately. Last ones I sold were the 102 strikes that I opened and closed in April for a nice quick gain when they had more attractive pricing. It's odd to see the market pricing LOWER volatility in oil-related stuff while all the media is talking about higher volatility oil prices.

“ And they are incredibly cheap. The DITM calls on XLE you can get 2X leverage at under 1% implied interest rate.”

Partially due to the relatively high dividend yield of xle I believe


Could be.
I struggle with figuring out how or why the dividends come into play on LEAPS.

For the Jan 27 calls, it looks like the total XLE dividends will be about $6.15 from now to then.

I did some searching and found confusing information. Very little on LEAPS, mainly on short time to expiration options.

"As a general guide, slightly prior to a dividend call options will fall slightly. ... Options will start pricing the stock price adjustment (related to the dividend) well ahead of when the stock price adjustment actually occurs. This implies micro-movements in the option price over time, which are likely to be overwhelmed by other factors."

"the Black-Scholes formula has limitations in valuing options on dividend-paying stocks.
"Since the formula does not reflect the impact of the dividend payment, some experts have ways to circumvent this limitation. One common method is to subtract the discounted value of a future dividend from the price of the stock."

That indeed changes the implied interest rate.

However, the first quote implies that the dividends are already priced into the option price.
As does the rule that "the market discounts all known information."

A few days ago, the Jan'27 XLE 50 had TimeValue of $0.88. I guess you could add something for the discounted future dividends, IF the option price has not taken the dividends into account.

Maybe you could get an idea by looking at options one month apart where there is a dividend between the two dates, and teasing out how much the computed implied interest rate changed. XLE has such---Dec'26 and Jan'27. It looks like historically the ex-date is just after the Dec expiration.

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