Warren Buffett has been buying more shares in Occidental Petroleum, according to a regulatory filing. As a result Berkshire Hathaway now owns over 22% of the oil company.
The filing shows that the purchases were made at prices between $59.85 and $61.90 per share. With the stock currently priced in the middle of that range, should I buy it myself?
Occidental Petroleum
Buffett is clearly bullish on the price of oil over the long term. As well as Occidental, Berkshire owns a significant stake in Chevron, one of the largest oil companies in the world.
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A few years ago, Buffett described an investment in Occidental as a bet on two things. One was the price of oil and the other was the Permean Basin.
So it looks as though the Oracle of Omaha thinks that oil prices are going to remain high and demand for US oil will be strong. Given the underinvestment in oil production recently, this could well be true.
With the stock trading at roughly the price that Berkshire has been buying at recently, it’s tempting to jump in as well. But there are two reasons I’m not going to do this.
First, Buffett has always insisted that the fact that someone else is doing something is not a good enough reason to do it. I agree with this principle.
In order to buy shares in Occidental myself, I need my own view of why I think it will do well over time. It’s not enough to think that someone else – even someone with a great record – has a thesis.
Second, if I want to invest Warren Buffett, I think there’s a better way to do this. Instead of buying shares in Occidental, I’d rather just buy Berkshire Hathaway stock.
Berkshire Hathaway
Warren Buffett’s investment activities are a constant source of interest. Given the Berkshire Hathaway CEO’s track record, that’s hardly surprising.
But the Oracle of Omaha is notoriously secretive about what Berkshire is up to in the stock market. Beyond what regulations require, Buffett dislikes disclosing what he’s up to.
As a result, I think that the best way to invest like Warren Buffett is to buy shares in Berkshire Hathaway and then do nothing. That way, when Berkshire increases its stake in Occidental, my share is also increased.
More importantly, if Buffett changes his mind about a stock and decides to sell, I don’t have to wait for the news to come out. My stake in the business goes down at the same time.
Unlike Occidental, Berkshire Hathaway is a company that I can work out an investing thesis for. It consists of a number of strong businesses and has a culture that allows it to grow steadily over time.
The main risk with the Berkshire Hathaway is that its size presents an obstacle to significant growth. But the company’s renewable energy projects give it at least one long-term substantial opportunity.
Investing like Warren Buffett is a great idea. But the way to do it isn’t by following the Oracle of Omaha into stocks – it’s by owning Berkshire Hathaway shares.
