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Buffett Sells Out Of XOM???


Buffetteer
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This is interesting. :)

 

Think about it: Buffett makes tons of money on PetroChina. I guess he thinks "I can do it in oil". Then he buys COP - does not do well, sells. Buys XOM, does not do well, sells. Does he now think "Nah, I can't do it in oil"? :)

 

Note: all errors and omissions mine. I went from memory and was too lazy to check facts. :)

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It's curious that BRK added 20% to Suncor in the same quarter. Granted, it's a much smaller position than XOM.

 

Suncor is Ted Weschler's pick if I recall correctly. Is he bullish on oil while Buffett is bearish?? That's an odd looking pair of transactions.

 

 

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I remembered Buffet said in an interview something like: "The best business is still those that need little capital but generate a lot of cash". XOM is capx intensive.

Or maybe he's selling to get more cash for an Elephant deal. He had said before that he will first sell his smaller holdings when he need cash to get deal down.

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maybe he sold because the price / near term earnings power rose by a lot.

 

I understand he is super long term, but he is not completely blind to valuation and near term fundamentals either. XOM is still primarily an upstream company in terms of profitability.

 

The stock is arguably more expensive than ever.

XOM_vs_USO.thumb.GIF.26807a3562701a6aafac9d2a8511dfeb.GIF

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There are only two logical answers: Either Buffett decided to put oil stocks on the "too hard pile" or he regarded the long term risk reward ratio for oil stocks as too bad.

Or he needed a cool 4b for the big elephant.

;D

 

With debt cost this low? Berkshire would essentially be paid if it took a loan to buy an elephant. I think it's highly improbable that "he was young and he needed the cash" is the explanation for this.

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There are only two logical answers: Either Buffett decided to put oil stocks on the "too hard pile" or he regarded the long term risk reward ratio for oil stocks as too bad.

 

I think it was more of a "capital allocation" decision 8)

Nowadays he seems to prefer large businesses like railways where they not only generate tons of cash flow after maintenance capex, but also are able to invest a lot in growth capex internally i.e. long growth runway. My guess is he thought Exxon could be one of those as well but with what happened with Oil industry, he probably thinks Exxon's internal/industry investment opportunities are limited for the foreseeable future.

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There are only two logical answers: Either Buffett decided to put oil stocks on the "too hard pile" or he regarded the long term risk reward ratio for oil stocks as too bad.

 

I think it was more of a "capital allocation" decision 8)

Nowadays he seems to prefer large businesses like railways where they not only generate tons of cash flow after maintenance capex, but also are able to invest a lot in growth capex internally i.e. long growth runway. My guess is he thought Exxon could be one of those as well but with what happened with Oil industry, he probably thinks Exxon's internal/industry investment opportunities are limited for the foreseeable future.

 

Scratch the previous rationale....

 

The Oracle obviously foresaw this happening today

http://www.cnbc.com/id/102435803

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There are only two logical answers: Either Buffett decided to put oil stocks on the "too hard pile" or he regarded the long term risk reward ratio for oil stocks as too bad.

Or he needed a cool 4b for the big elephant.

;D

 

or he decided XOM was not the best value in the industry, and he is buying something else in the industry (undisclosed with SEC waiver, which is not unprecedented for him).

 

personally I think XOM has been trading very expensive relative to other opportunities in energy right now.

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Why everyone — even Warren Buffett — got oil prices wrong (Washington Post)

 

http://www.washingtonpost.com/blogs/wonkblog/wp/2015/02/19/why-everyone-even-warren-buffett-got-oil-prices-wrong/

 

Oil companies borrowed $200 billion to expand their drilling during the boom, so they can't afford to stop drilling during the bust.

 

I love how people keep repeating this without spending even a minute to check the facts. Apparently all the 40-80% capex drop announcements are fiction.

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