No. of Recommendations: 16
(1) For example, a spike in oil prices would raise fuel costs at two of Buffett's biggest businesses, Berkshire Hathaway Energy and the BNSF Railway. However, the increases will now be partially offset by Occidental selling its oil for a higher price and collecting bigger profits ' especially as Berkshire owns enough of the fossil-fuel company to account for a proportional share of its earnings as its own.
I think that someone who says Buffett would be buying an oil company as a hedge, not just as an investment standing on its own merits, does not demonstrate much understanding of how Buffett thinks and acts. And to think that the accounting treatment of Occidental's earnings (equity accounting, beyond a 20% ownership) would be an additional motivation for Buffett, shows even less understanding of Buffett. Buffett wants a stream of reliable future earnings, ideally reinvested in the business, or, probably, in the case of the oil and gas industry, distributed back to Berkshire, not some accounting treatment that makes the profits look bigger on the earnings sheet.
(2) Russo described Berkshire staking a claim to Occidental's "huge pool of oil" as a shrewd and unorthodox move. He compared it to Buffett's investment of "float," or the money left over after premiums are collected and claims are paid out by his insurance companies.
I'm not seeing the link between float and oil. Float is other people's money that you can use as your own. Oil is nothing like that. But I didn't listen to the whole interview, so perhaps there is some parallel I'm missing. But given (1), I'm not very motivated to dig in further to find out what (2) might mean.
regards,
dtb
No. of Recommendations: 0
I had much the same feelings as you on reading the article. Russo is often quoted by the financial media around the time of the annual report and AGM, but rarely provides any meaningful insight on BRK or Buffett.
And to think that the accounting treatment of Occidental's earnings (equity accounting, beyond a 20% ownership) would be an additional motivation for Buffett, shows even less understanding of Buffett
I agree accounting treatment would not influence Buffett in deciding to invest. However a lower tax rate on dividend would be an added bonus, boosting total return.
No. of Recommendations: 7
Makes little sense.
Utilities are generally permitted to pass through energy costs to rate payers. All they care about is having supply at peak periods. Its that way just about everywhere. That comment looks to me to be naive.
Rails like airlines and others MAY do their own hedging. He has owned BNI for what 20 years and never saw the need to hedge in his equity portfolio when oil prices have been much higher and much lower. Makes no sense. If the rail wants to hedge, they can do it all by themselves. My guess is they don't because no one ever gets it right more than 50% of the time. NO ONE.
There are better ways to hedge if that was his thesis. He could buy all of HESS and have 30% of the world's largest oil find in the past 20 years and in the next decade will be one of the largest in the world when fully developed.
Maybe he sees what others may see. The world is not replacing production. The world is increasingly dependent on oil and gas from the Permian, Marcellus and Canada. Renewables are stupid and require big spending on gas backup while he and others are shutting down coal production and nuclear in the US is running downhill.
