Warren Buffett’s High-Conviction Bet on Occidental Petroleum: A Test of Fortitude
Warren Buffett, the legendary investor and CEO of Berkshire Hathaway, is known for his long-term investment strategy and his ability to identify undervalued companies. One of his most high-profile bets in recent years has been on Occidental Petroleum (OXY). Buffett’s investment in OXY, which was made through his investment in Chevron (CVX), gives Berkshire Hathaway a significant stake in the oil and gas company.
The Background of Warren Buffett’s Bet on Occidental Petroleum
Buffett first disclosed his investment in OXY during Berkshire Hathaway’s annual meeting in 2019. At the time, he praised the company’s management team and its position in the Permian Basin, the most productive oil field in the world. Buffett also noted that OXY was paying a dividend yield of over 6%, which was significantly higher than the average yield for the S&P 500.
The Challenges Facing Occidental Petroleum
However, since Buffett made his investment, OXY has faced a number of challenges. The most significant of these has been the decline in oil prices, which began in late 2019 and was exacerbated by the COVID-19 pandemic. The price of oil has fallen from over $60 per barrel in early 2020 to under $40 per barrel in April 2020. This has put pressure on OXY’s financials, as the company relies on high oil prices to generate significant cash flow.
The Impact on Buffett and Berkshire Hathaway
The decline in oil prices has led to some speculation that Buffett’s investment in OXY may not pay off. Berkshire Hathaway’s investment in Chevron, which gives it a stake in OXY, has declined in value as oil prices have fallen. However, Buffett has remained steadfast in his belief in the long-term potential of OXY. In a letter to shareholders in February 2020, he wrote:
“We’ve owned some Occidental Petroleum stock for a while, and Charlie and I continue to like the business. The current price of oil is far below what we expect it to be ten years from now. Occidental’s oil reserves are huge, and its cost of production is low. I’m confident that Oxy’s earnings ten years from now will be significantly higher than they are today. Buffett, 2020
The Impact on the World
The challenges facing OXY are not unique to the company. The decline in oil prices has had a ripple effect throughout the energy industry and the global economy. Many oil and gas companies have seen their stocks decline in value, and some have even filed for bankruptcy. The decline in oil prices has also had a negative impact on countries that rely heavily on oil exports, such as Russia and Saudi Arabia.
Conclusion
Warren Buffett’s investment in Occidental Petroleum is a test of his long-term investment strategy and his belief in the potential of the oil and gas industry. While the decline in oil prices has put pressure on OXY’s financials and Berkshire Hathaway’s investment, Buffett remains confident in the long-term potential of the company. The challenges facing OXY are not unique to the company, however, and the decline in oil prices has had a significant impact on the energy industry and the global economy as a whole.
As individual investors, it’s important for us to remember that the stock market is a long-term game. While it’s natural to be concerned about short-term fluctuations in the value of our investments, it’s important to keep a long-term perspective. Buffett’s investment in OXY is a reminder that even in challenging times, there are opportunities to be found for those who are patient and have a well-thought-out investment strategy.
- Buffett’s investment in OXY is a long-term bet on the company’s potential
- The decline in oil prices has put pressure on OXY’s financials and Berkshire Hathaway’s investment
- The challenges facing OXY are not unique to the company and have had a ripple effect throughout the energy industry and the global economy
- It’s important for individual investors to keep a long-term perspective
