America’s leading investor, Warren Buffett, gave a wide-ranging interview to CNBC in which he gave a fitting explanation of why his company, Berkshire Hathaway, sold all its stock in Exxon Mobil Corp. in the fourth quarter of 2014.
Buffett’s bottom line? “We thought we might have other uses for the money,” he said, and was quick to add, “Exxon Mobil is a wonderful company.”
The Nebraska-based entrepreneur, often referred to as the “Oracle of Omaha,” didn’t say what “other uses” he might have for the $3.7 billion that he’d invested in Exxon Mobil. But he did say why he sold the stock.
“Its current earning power, obviously, is diminished significantly from where it was a year ago, as is true with all oil companies,” Buffett said, referring to the drop in profits, and sometimes losses, suffered by energy companies because of the eight-month-old plunge in oil prices. “But Exxon Mobil has been one of the great investments of all time.”
Berkshire had held 41.1 million shares in Exxon, worth an average of $90.86 per share in 2013, according to the oil company’s latest annual report. In fact Berkshire was one of Exxon’s largest shareholders until the stock selloff. Exxon shares sold for nearly $3 more during that period, so it’s possible that Buffett even made a profit on the sale.
This and other sales of assets, as well as various acquisitions, were not made public until a regulatory filing on February 17, which is required of investors who manage more than $100 million.
So can Buffett’s reasoning be taken at face value? Was he simply looking for another place to put his money? Evidently so, according to Fadel Gheit, an analyst for Oppenheimer & Co. in New York. Despite its prowess investing in a variety of industries, Berkshire has “not really had the hot hand in energy,” he said, and the plunge in oil prices means the rules have changed dramatically.
Perhaps the best way to understand Buffett’s benign attitude to Exxon Mobil is to liken it to his feelings about IBM. Like Exxon Mobil, IBM has suffered lower sales, yet Berkshire increased its stake in the computer company during the fourth quarter of 2014 and now holds 77 million shares.
Still, Buffett said, he thinks IBM will continue on a steady course, with no spikes or plunges in its earnings, and its stock price remains stable, making it easier to sell if the need arises.
“The best thing that could happen,” Buffett said, “would be if the stock did nothing for five years. … People have the conception – misconception – [that] when we [investors] buy a stock, we like it to go up. That’s the last thing we want it to do.”
Buffett, sitting in his Omaha office, added, “Look around the room. You can see I like buying things cheap.”
And that may be Buffett’s point about Exxon Mobil: The drop in oil prices can’t last forever, and a bottom will emerge eventually. And from there, logic would dictate that the only direction for Exxon Mobil’s stock would be up.
Originally written for OilPrice.com, a website that focuses on news and analysis on the topics of alternative energy, geopolitics, and oil and gas. OilPrice.com is written for an educated audience that includes investors, fund managers, resource bankers, traders, and energy market professionals around the world.