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Buffett Goofed by Selling Apple Stock Instead of Occidental, but All Isn’t Lost
https://www.barrons.com/articles/warren-buffett-be...

I was able to read it in Chrome.

Quotes:

Warren Buffett sold the wrong stock this year.

The Berkshire Hathaway BRK.B CEO has cut the company’s big stake in Apple AAPL by two thirds to 300 million shares. Barron’s estimates that Berkshire Hathaway
BRK.B has left over $35 billion on the table given Apple’s 31% gain this year to $253, comfortably above our estimate of Berkshire Hathaway’s average sale price of $190.

By contrast, Buffett has added to the Berkshire Hathaway’s sizable Occidental OXY stake and it now holds 255 million shares, a 27% stake in the energy company.

Unfortunately, Occidental stock has done poorly this year, falling 21% to $47 after hitting a new 52-week low Tuesday. Barron’s estimates that Berkshire Hathaway paid an average price of about $53 a share, based on the disclosed prices paid for most of the stake.

Barron’s estimates that Berkshire Hathaway has paper losses of around $1.5 billion on the Occidental stake, which is now worth about $11.7 billion. Buffett no longer provides the cost basis of Berkshire Hathaway’s top equity investments in his annual shareholder letter, forcing us and others to make an estimate for Occidental.

...

One Occidental fan is Bill Smead, chief investment officer of the Smead Value fund. He points out that Occidental’s current market value of $44 billion is about the same as it was in 2019 before the company bought Anadarko. Investors are effectively getting a much bigger company for the same price.

“Do not despair,” says Smead. “We’re in a multiyear recovery of commodities vs. stocks.” More than a decade ago, investors were focused on what looked like China’s insatiable demand for commodities, and now they are writing off the country’s economy.

“The best way to bet China will make a comeback is through the oil-and-gas industry,” says Smead.

...

Buffett’s behavior meanwhile has been perplexing. Berkshire Hathaway was a steady buyer of the stock from March 2022 through June 2024, often paying around $60 a share. Investors even talked about an Occidental “put” at $60 with Berkshire Hathaway seemingly ready to buy the stock at that level.

All this Buffett goofed stuff is subject to when and if you are "settling up" or closing shop so to speak. The game, as always, is in process and not finished business.

Whether Buffett made a mistake or not won't be determined for years.

Ole dealraker, this poor soul, is still as has been the case for some time thinking that when this market cycle is over that it will be the big cappers that prove over-valued. Yep the current and direction of AI spending, while surely a good thing for us over time, is unsustainable from its eventual near term economic returns.

The amount of money that Apple needs to make just to sustain its current market cap is simply incredible. Odds of this happening over time?

" The Berkshire Hathaway BRK.B CEO has cut the company’s big stake in Apple AAPL by two thirds to 300 million shares. Barron’s estimates that Berkshire Hathaway
BRK.B has left over $35 billion on the table given Apple’s 31% gain this year to $253, comfortably above our estimate of Berkshire Hathaway’s average sale price of $190.

By contrast, Buffett has added to the Berkshire Hathaway’s sizable Occidental OXY stake and it now holds 255 million shares, a 27% stake in the energy company."

How much lower would oxy be if Buffett hadn't accumulated 27%? How much higher would AAPL be IF he wasn't an aggressive seller? Trading is hard.

I have to agree that the current price isn't really a very good measure of whether the Occidental investment will turn out to have been a good play. It's fun to pull up a chart to see how long the Washington Post price kept falling and languishing after Berkshire bought it. Years.

But this part is an interesting question---
Buffett’s behavior meanwhile has been perplexing. Berkshire Hathaway was a steady buyer of the stock from March 2022 through June 2024, often paying around $60 a share.

I don't think (?) there are issues with the various types of constraints arising from the percentage of ownership, at least not yet.
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.

I guess a distant third is that he *really* wants a lot of cash in hand for optionality, figuring that so many things are so expensive (a situation which never lasts forever) that surely some better deal will come along sooner or later.


Jim

Buffett’s behavior meanwhile has been perplexing. Berkshire Hathaway was a steady buyer of the stock from March 2022 through June 2024, often paying around $60 a share. Investors even talked about an Occidental “put” at $60 with Berkshire Hathaway seemingly ready to buy the stock at that level.

The chart ain't so pretty:
https://stockcharts.com/freecharts/perf.php?OXY,CV...

5-year chart showing the COVID slump:
https://stockcharts.com/freecharts/perf.php?OXY,CV...

OXY down 75% in October 2020. How quickly we (or I) forget.

The whole thing is perplexing, and I don't think we can look at individual positions separately anymore. As you say, each decision could be base don multiple things. But the overall decision to raise and maintain so much cash must have some reason behind it. There are a few possible reasons:
1. Could be that he wants massive cash available to take advantage of good bargains when the SHTF (debt crisis, CRE crisis, government paralysis crisis, whatever it may be). This is an entirely reasonable supposition.
2. But it could also be a liquidation event on the horizon someday that is being prepared for. Maybe upon WEBs death, all his shares will be liquidated and instead the cash used for the various foundations (I know everything says otherwise, but perhaps it is still planned so that the foundations aren't made reliant on a non-WEB manager). That would make $300B+ logical, $100-150B to buy all of WEBs shares, plus another $150-200B for the new guys to use to tun the business, to invest in their own picks.

"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.

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.

How huge could the borrowing requirements be? I think OXY only has total debt of $27B or so. Maybe they use internal cash flow to finance the new reserves?

Buffett’s behavior meanwhile has been perplexing. Berkshire Hathaway was a steady buyer of the stock from March 2022 through June 2024, often paying around $60 a share. Investors even talked about an Occidental “put” at $60 with Berkshire Hathaway seemingly ready to buy the stock at that level.

So he bought some more. That's interesting. Wasn't attractive at $60 anymore, but was at $50?

"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." - Me

"How huge could the borrowing requirements be? I think OXY only has total debt of $27B or so. Maybe they use internal cash flow to finance the new reserves?" - Mark

They purchased CrownRock for $12.4 billion. Most people would consider that to be a huge slug of cash.

Probably thought he had enough already but then when the price drops below 50 it's too good to ignore.

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