What did he write?

After discussing a textile business that the group had owned, and explaining that for six years he had unsuccessfully tried to prove that it would deliver a modest cash return, Buffett wrote: “Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”

Although he was discussing Berkshire’s majority position in an operating business, I think the same advice applies to investing in the stock market. If it’s clear that a company’s not going anywhere, it’s best to sell up, even if you’re sitting on a loss.

Personally, I think investors should take a long-term view. But there’s a big difference between a stock price falling as a result of the ‘normal’ economic cycle and one that’s going down due to the underlying business being fundamentally broken.

Another excellent quote points to the benefits of passive income, and earning dividends from doing very little. The American billionaire once observed: “If you don’t find a way to make money while you sleep, you will work until you die.”

Ironically, since Buffett took over in 1965, Berkshire Hathaway has only paid one dividend, in 1967. The group’s boss would rather use surplus cash to repurchase the group’s stock. He also recently wrote: “I can’t remember why I suggested this action to Berkshire’s board of directors. Now it seems like a bad dream.”

Very different

In many respects, Berkshire Hathaway is an unusual investment vehicle. It owns all of the stock of many operating businesses in the textile, insurance, and energy sectors. In 2024, these generated $47.4bn of operating earnings compared to the group’s $52.8bn of investment gains from minority positions in quoted companies.

The group’s also unconventional in that it’s sitting on a huge amount of cash and US Treasury bills — $377bn at 30 September 2025. This is $94bn more than the value of its stocks.

Good and bad

But Buffett isn’t perfect. He admits he’s made many mistakes. In 20 years out of the six decades from 1964-2024, the group’s shares underperformed those of the S&P 500.

However, over this period, Berkshire Hathaway’s share price has risen by an astonishing 5,502,284% compared to 39,054% for the index as a whole. Remember what I said about long-term investing?

As the American retires, an obvious concern is whether the company will continue to deliver exceptional returns in a post-Buffett era. Also, its apparent lack of interest in the tech sector – for example, it’s recently been reducing its stake in Apple — could prove to be a mistake.

However, I still think the group’s shares are worth considering, although I suspect its Class A stock’s beyond the reach of most investors. Each share currently (18 January) costs over $738,000! Fortunately, its B shares are changing hands for a more affordable $492, although they don’t carry the same voting rights.

The post As Warren Buffett retires, what have been his best pieces of advice to investors? appeared first on The Motley Fool UK.

Buffett’s record is widely acclaimed. But just how good is it really?

Multi-millionaire maker

Buffett took the reins at Berkshire in 1964. In those days one pound bought a lot more US dollars than it does today, so to keep things simple I refer here to dollars, not pounds.

That said, leading US shares including Berkshire Hathaway are easily able to be bought by most UK investors through a Self-Invested Personal Pension (SIPP), Stocks and Shares ISA or other share dealing accounts.

To the end of last year, Berkshire’s per-share market value had grown since Buffett’s takeover by a phenomenal 5,502,284%.

To put that in perspective, during the same period, the benchmark S&P 500 index of US shares rose by 39,054%.

I would be very happy with that sort of performance – but Berkshire Hathaway shares beat it by a country mile!

So far this year, Berkshire shares are up 9.4%, putting the total gain from Buffett’s takeover until now at around 6,021,150%.

That means $1,000 invested back then would now be worth over $60m!

What about the dividends?

That return’s incredible. Would someone who bought Berkshire Hathaway shares when Buffett took over have earned dividends?

No. Unlike previous management, Buffett chose not to pay dividends at the firm. Instead he has used the cash Berkshire generates to invest in growth, whether in existing businesses or by buying new ones in whole or in part. That has included some legendary stock market purchases.

This is an example – and a very impressive one at that — of compounding in practice.

Buffett’s minted many millionaires

Is this all theoretical? Actually no! There were some fortunate investors in Buffett’s previous partnership (which he closed down when he took over Berkshire Hathaway) who then put the money from that into shares of his new venture — and kept it there for decades.

Even for most of us, who did not do that, I think the return provides a powerful lesson in why long-term investing can be so lucrative as an approach.

Applying the Berkshire model as a small investor

But a lot of what has helped propel Berkshire Hathaway shares can also be useful stimulus for a private investor even with a limited amount to invest.

The company has focused mainly on a few core areas, where it thinks it has some competitive advantage.

Buffett has always sought to distinguish between a good business and good investment, meaning he pays close attention to valuation. He has also stuck to what he calls his ‘circle of competence‘ when investing – businesses he feels he understands.

What will happen now to Berkshire? Under new leadership (though still with Buffett as chairman), applying the same time-proven principles may help the company keep doing well.

But any leadership transition brings risks, for example that the new leader is too keen to imprint their own personality on the role and so makes mistakes.

Berkshire’s huge cash pile presents massive opportunities – but it may be difficult for someone without Buffett’s discipline not to invest some of it just to put it to use.

Time will tell how the company’s incoming chief executive performs, against a stiff benchmark!

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His track record has been remarkable. According to Buffett’s most recent letter to Berkshire shareholders, the compounded annual gain of the per-share market value from 1965 to last year was a staggering 5,502,284%.

That compares to 39,054% for the S&P 500 (with dividends reinvested) over the same period.

That S&P 500 number is already impressive to me and I think it demonstrates the power of long-term investing. But the Berkshire number is dramatically better.

The thing is, the stock market has changed a lot since 1965. Could an investor today realistically hope to come anywhere near matching that sort of performance?

Small-scale investing can be powerful

These days, Berkshire’s huge size means that Buffett needs to make massive investments to try and move the needle.

He has lamented that, when he was investing comparatively smaller sums, he had better opportunities to produce higher returns.

He has been reported as saying: “It’s a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million.”

Granted, most private investors would consider $1m to be a significant amount of money. But Buffett’s meaning is clear. Investing on a smaller scale throws up opportunities that are not open to those seeking to put billions of pounds to work.

Berkshire’s record demonstrates that. Between 1965 and 1979, there were two years in which the company’s per-share value more than doubled. Since then, there have been none.

But it is not just how much invested that matters, of course. It is how it is invested.

Stock market information revolution

In some ways, investors have advantages today that Buffett would have loved all those decades ago. Reams of company information is made instantly available online, free of charge. There are also some highly competitive share-dealing accounts available now.

That widespread information dissemination is a double-edged sword though. Other investors can also access it.

However, it can be a powerful tool in helping a private investor as they try to invest like Buffett.

Thinking (and investing) like the Oracle of Omaha

When investing Berkshire’s cash in shares, he has often followed some key principles. As investments like Coca-Cola and American Express show, he likes well-established businesses with proven models and often looks for powerful brands and existing customer bases.

It does not always work. One of Berkshire’s duff investments under Buffett was its stake in Tesco. An accounting scandal led him to sell the shares at a steep loss.

That scandal is long-since resolved, but the episode demonstrated that while Buffett invests for the long term, when he considers material facts to have changed, he reassesses the investment case for a share.

Such an approach seems appropriate for a private investor too, as far as I am concerned.

The post As Warren Buffett prepares to step down, can today’s investor match his historic returns? appeared first on The Motley Fool UK.

In this year’s letter to shareholders in his company Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B), Buffett noted that “During the 2019-23 period, I have used the words ‘mistake’ or ‘error’ 16 times in my letters to you. Many other huge companies have never used either word over that span”.

Buffett is not afraid to admit his mistakes. Here are three I try to avoid.

Mistake one: buying the right business at the wrong time

In the letter, Buffett pointed to what many people may think is a very odd thing for him to call a mistake. In fact, though, he has previously described it as his biggest mistake.

“Sixty years ago, present management took control of Berkshire,” writes Buffett. “That move was a mistake – my mistake – and one that plagued us for two decades. Charlie, I should emphasize, spotted my obvious error immediately: Though the price I paid for Berkshire looked cheap, its business – a large northern textile operation – was headed for extinction.”

The mistake here had two elements.

The first was that Warren Buffett was walking into a classic value trap. Berkshire had had a storied past but its marketplace had changed. It was essentially in inevitable decline, but Buffett did not see that.

Berkshire had been a great business – but not by the time Buffett bought it. Since then, the company has transformed and its businesses now span multiple areas with resilient demand.

The second mistake was subtle. There was an opportunity cost to tying up capital in Berkshire. That money could not be used to invest in far better opportunities.

That is why Buffett describes buying Berkshire as such a costly error, despite its massive profitability now. Used elsewhere, the money paid for it could have produced far better results, much quicker, as Buffett later showed with Berkshire’s investments in some brilliant businesses. Given its business model, poor capital allocation remains a risk for Berkshire.

Mistake two: ignoring clearly understood great opportunities

Warren Buffett has said that many of his most costly mistakes were mistakes of omission, not commission.

In other words, the mistake was not what he actually did (as in buying Berkshire) but what he failed to do.

An example is Alphabet.

Buffett has said he should have realised how brilliant its business model was, since Berkshire was spending lots of money to advertise on Google. But, even though Alphabet was well known to Buffett, he did not invest in it.

Mistake three: not acting fast enough on known concerns

As Warren Buffett’s longtime partner Charlie Munger put it when discussing Berkshire’s GEICO insurance operation, “We could see at GEICO how well Google advertising worked and we sat there sucking our thumbs“.

Munger abhorred what he called thumb-sucking: putting off a painful decision when there is already enough indication it ought to be made.

Speaking of his decision to sell a stake in Tesco slowly after an accounting scandal came to light, Buffett wrote in his 2014 shareholders’ letter: “My leisurely pace in making sales would prove expensive. Charlie calls this sort of behaviour ‘thumb-sucking.’ (Considering what my delay cost us, he is being kind)”.

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Therefore, it’s said that while shareholders worry about the return on their investment, bondholders worry about the return of their money. And, ripples in the bond market can warn of waves swamping the stock market later.

Bond investors get nervous

When politicians make troublesome financial decisions, bond investors often scramble for the exits. These selling waves put huge pressure on governments to reverse problematic policies. Thus, bond-market disruptions can convince politicians to avoid making decisions likely to increase inflation and threaten bond returns.

This led to the description — by economist Ed Yardeni in the 1980s — of investors who sell fixed-income securities in protest against poor policies as ‘bond vigilantes’. In recent decades, it seems bond vigilantes increasingly call the shots.

When British ex-prime minister Liz Truss unveiled huge tax cuts in a mini-Budget in September 2022, UK Gilts (government bonds) fell the most in almost two centuries. This forced Truss to resign after 45 days in power, while also rattling the UK stock market.

Likewise, when President Trump unveiled huge US import tariffs on 2 April, US Treasury yields soared and share prices plunged. Within a week, bond ructions caused Trump to suspend new tariffs for 90 days. Afterwards, Trump described bond markets as ‘yippy’ (nervous).

‘Sell America’

Shareholders panicked during April’s bond scare and stock-market plunge, but the S&P 500 has since recovered to within 3.8% of its record high.

However, Wednesday, 21 May saw soft demand during a 20-year Treasury auction, with global investors perhaps growing wary of owning US assets. The S&P 500 immediately dived 1.6% after this latest bond wobble.

Yearly Treasury issuance was $4.5bn in 2007 and $30bn this year, with the ratio of US debt to GDP soaring from 35% to almost 100% over this period. This year, the US will pay a record $1trn in debt interest. And with tax cuts coming, the US budget deficit will rise from this year’s estimate of 6.4%. All bad news for bonds — and shares?

A stock for all seasons?

Clearly, share owners are paying closer attention to recent weakness in bond markets. Also, given higher market volatility, some investors are cutting back on US assets. But billionaire Warren Buffett — the world’s greatest investor — once warned to “never bet against America”. And I see shares in Buffett’s highly diversified, $1.1trn conglomerate Berkshire Hathaway (NYSE: BRK.B) as well-placed to ride out coming storms.

As well as a massive stock portfolio packed with blue-chip firms, Berkshire generates huge cash flow from its powerful insurance operations. It also owns over 180 different companies, in sectors including consumer goods, energy, manufacturing, and railroads. This makes the group incredibly widespread across the US economy.

Even better, Berkshire has $347bn in cash. Therefore, if stock markets crash, then the company can buy quality assets at discounted prices. Of course, in sustained market meltdowns, few firms would emerge unscathed — plus Buffett himself is retiring this year.

My family portfolio has owned Berkshire shares since November 2022 for the long term. Indeed, if prices slump, we may well buy more!

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Different investors use it in different ways. Some want to target capital growth by buying shares cheaply and later selling them for a profit. Some focus on passive income: a regular stream of dividends, or putting the dividends to work to try and earn more income down the road.

So, how much passive income could a £20K Stocks and Shares ISA realistically have earned over the past decade?

The straightforward dividend approach

One variable is the average dividend yield. I will use three to illustrate: the current FTSE 100 average of 3.6%, then 5% and what I see as a high yield, 8%. In today’s market, I think both 5% and 8% are possible while sticking to carefully selected blue-chip shares.

Taking dividends out as they are paid, over a decade, 3.6% would have generated £720 each year – a total of £7,200 over a decade.

Five percent would have been £1,000 each year – a total of £10,000 in a decade. At 8%, the ISA would generate £1,600 a year in dividends. That means the £20K would have generated £16K of passive income over my chosen timescale.

On top of that, an investor may benefit from capital gains when the price goes up (although share prices can fall as well as rise).

Taking the Warren Buffett approach

A second approach is to do what billionaire investor Warren Buffett does.

He has run Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) for decades but during his tenure it has only paid one dividend. That is despite it generating huge cash flows thanks to owning a lot of successful businesses outright while also holding shares in steady dividend payers like Coca-Cola.

It makes sense for Berkshire to keep some cash on hand. It operates in the insurance industry and there is always a risk that an event — like a hurricane — could suddenly push up its short-term cash needs to meet claims. But Berkshire has hundreds of billions of dollars of cash on hand today!

Rather than doling it out as dividends, Buffett aims to put it work to try and earn even more money in future, by making more investments (although the current cash pile means Berkshire hasn’t done as much of that lately).

Compounding an ISA

A similar approach (known as compounding) can be applied to the dividends received in a Stocks and Shares ISA.

Compounding a £20K ISA at 3.6% for a decade, it would be worth over £28,400 – enough to earn £1,025 in dividends at a 3.6% yield.

Compounding at 5%, the ISA would be worth over £32,500 after a decade. That could then earn around £1,628 each year in dividends.

Meanwhile, compounding the £20K ISA at 8% for 10 years, it would be worth over £43K and could then earn £3,454 in passive income annually.

Compounding would have meant sacrificing dividends for a decade but hopefully earning bigger ones from this year onwards (or whenever the investor chose to stop compounding and start withdrawing).

Selecting the right shares is key, but the costs of a Stocks and Shares ISA can eat into overall returns, especially over the long run. So a savvy investor will start by comparing different ISAs on the market and decide which one suits their needs best.

The post How much passive income could a £20K Stocks and Shares ISA have made in the past decade? appeared first on The Motley Fool UK.

Did Buffett foresee a crash?

I’ve seen this question asked several times in 2025 (including by me) as the US stock market slipped. Who knows the thoughts of this 94-year-old investing genius? However, Warren’s warned repeatedly that American shares were priced close to perfection.

Indeed, the Oracle of Omaha sold stocks heavily in late 2024, building a massive cash pile to buy big when the buying looks good again. Even after selling $143bn of shares in 2024, Berkshire’s stock portfolio was worth $272bn. (This sum is larger than all but a few European businesses.)

Warren’s advice for tough times

For me, Warren Buffett is the greatest investor of modern times. His market wisdom is immaculate — and when (rarely) wrong, he is humble and owns his mistakes.

In 2025’s yearly letter to Berkshire shareholders, Buffett stated that he would “never prefer [cash] over the ownership of good businesses”. This backs an earlier quote from Uncle Warren: “cash is always a bad investment”.

What advice does this mega-billionaire have on coping with stock-market crashes? Here are five quotes culled from my extensive Buffett library:

1. “Be fearful when others are greedy and be greedy when others are fearful.” (from mid-October 2008) — In other words, be contrarian. Buy when there’s blood in the streets, even if it is your own.

2. “American magic has always prevailed, and it will do so again.” (Shareholder meeting, 2020) — Markets have been shaken by President Trump, but America still has the world’s largest economy, stock markets, bond markets, and reserve currency — all underpinning American exceptionalism.

3. “Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold.” (Letter to shareholders, 2016) — Following the stock-market crash of spring 2020, we had another this month. That’s two great opportunities for brave dip-buyers in just five years.

4. “Just buy something for less than it’s worth.” (Lecture to Notre Dame faculty, 1991) — Spoken like the old-school value investor Buffett is. Another similar quote is, “buy great companies at fair [share] prices”, my market mantra.

5. “It’s never paid to bet against America. We come through things, but it’s not always a smooth ride.” (January 2009) — As per quote #2.

We backed Buffett

Taking Warren Buffett’s advice, my wife and I bought into Berkshire in November 2022. This stock looked cheap back then, but doesn’t appear expensive today, even after rising nearly 90%.

Today, investors can buy Berkshire B shares for $530.15 each, valuing this group at $1.1trn. They are up 15.8% in six months, 30.6% over one year, and 184.2% over five — thrashing the S&P 500. Yet they trade on a modest multiple of 12.6 times trailing earnings, delivering an earnings yield of 7.9%. There is no dividend, but I prefer Buffett to keep my cash.

Of course, Buffett can’t keep going forever, but he may never retire from Berkshire. His close friend and vice-chair Charlie Munger lived to 99, so I hope Warren outlasts Charlie!

The post Here’s billionaire Warren Buffett’s advice on surviving market meltdowns appeared first on The Motley Fool UK.

I think not. Radical White House plans undoubtedly raise significant risks, but they might also create some fabulous (and rare) long-term investment opportunities worth considering. Here’s how investors could aim to build tax-free ISA wealth amid stock market chaos.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Global trade war fears

Wall Street’s reaction to President Trump’s ‘Liberation Day’ speech erased an eye-watering $3.1trn from the US stock market. Upending decades of American foreign policy, Trump claimed other nations had “looted, pillaged, raped, and plundered” the world’s largest economy. No country was spared his wrath.

Those that got off lightly (the UK among them) will be subjected to a universal baseline 10% tariff. Only Canada and Mexico are exempt, but previous 25% tariffs on billions of dollars of goods remain in place. The “worst offenders” in Trump’s eyes, including China and some Southeast Asian countries, were whacked with duties over 40%.

This has sparked fears of a new era of global protectionism. Supply chain destruction, inflationary spikes, and a possible global recession are very real risks. It’s a testing time to be contributing to a freshly-minted or ongoing Stocks and Shares ISA!

Long-term investing

Unfortunately, investors may have to endure more bloody days ahead for their ISA portfolios. Tariff-fuelled uncertainty could freeze companies’ capital investments, and share prices suffer when extreme fear drives market sentiment.

That said, beaten-down stocks may ultimately offer generational buying opportunities to consider. For instance, ‘Magnificent 7’ stocks are in a bear market. Many of these businesses will likely be innovative, profitable enterprises long after Donald Trump leaves the White House, even if the near-term risks are considerable.

Closer to home, I think FTSE 100 stocks like biotech giant AstraZeneca and defence contractor BAE Systems are worth considering for a new ISA year.

Granted, neither’s immune to widespread market panic. But at least pharmaceuticals appear to be exempt from the reciprocal tariffs for now, and rising military expenditure could help defence stocks defy the sell-off.

A stock that keeps going higher

One company that’s trading near an all-time high despite stock market turmoil is Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B).

Armed with $334bn in cash reserves, Berkshire’s sitting on the largest stockpile ever held by a public company. It’s hard to think of another firm better prepared for a full-blown stock market crash.

Buffett’s spent more than 50 years at the conglomerate’s helm, steering the Berkshire Hathaway share price higher through the inflationary 1970s, Black Monday, the dotcom bubble, the global financial crisis, and the Covid-19 pandemic. Trump’s tariffs will likely be no match for the ‘Oracle of Omaha’.

At 94, Buffett’s age is a potential concern for investors. He won’t live forever. One day, his investing wisdom will be sorely missed by Berkshire shareholders.

Nonetheless, in difficult times, ISA investors keen to get rich would be wise to consider taking refuge in Berkshire Hathaway shares.

The post Are Trump’s tariffs a once-in-a-lifetime chance for ISA investors to get rich? appeared first on The Motley Fool UK.

The latest one covers events in 2024, a period during which the group’s 189 operating businesses (mainly in the insurance, railroad and utility sectors) reported earnings of $47.4bn.

This figure excludes the $52.8bn of gains made on its investments in other listed companies. Most of this ($49.3bn) has yet to be realised, it simply reflects the change in market value of these shareholdings over the course of the year.

Buffett tends not to focus on this number. That’s because “over time, we think it highly likely that gains will prevail — why else would we buy these securities?”

And he notes that the value of these will change significantly from one period to another. That’s why he stresses (yet again) the need to take a long-term view when it comes to investing.

Buffett writes: “Our horizon for such commitments is almost always far longer than a single year. In many, our thinking involves decades. These long-termers are the purchases that sometimes make the cash register ring like church bells.”

Indeed, this approach appears to have paid off.

Spectacular growth

From 1965-2024, Berkshire Hathaway’s stock price has grown by an average annual rate of 19.9%, almost double that of the S&P 500. Overall, this has resulted in an astonishing 5,502,284% increase in the value of each share.

And if it wasn’t for the US stock market, I’m not sure what Buffett would be doing today. The billionaire modestly writes: “Lacking such assets as athletic excellence, a wonderful voice, medical or legal skills or, for that matter, any special talents, I have had to rely on equities throughout my life.”

Piles of cash

Elsewhere in his letter, Buffett acknowledges that the group’s sitting on a lot of cash. At 31 December, its balance sheet disclosed $334bn of cash, cash equivalents and short-term Treasury Bills. To put this in context, it’s enough to buy Shell and BP, and have $35bn left over.

Some have speculated that the $167bn increase during the course of the year is a sign that he thinks a crash is coming.

But without explaining why the company’s been selling equities and stockpiling cash, he says: “Berkshire shareholders can rest assured that we will forever deploy a substantial majority of their money in equities… Berkshire will never prefer ownership of cash-equivalent assets over the ownership of good businesses, whether controlled or only partially owned.”

And finally…

However, not everything in the Berkshire Hathaway garden’s rosy. In aggregate, its operating companies are hugely profitable. But 53% of them reported falling earnings.

Also, Buffett admits to sometimes making mistakes, both in terms of “assessing the future economics of a business” and hiring people.

And I think with tinge of sadness, the American writes: “At 94, it won’t be long before Greg Abel replaces me as CEO and will be writing the annual letters.”

But whenever that time comes, I’m sure millions of investors around the world will acknowledge his influence. I think he’s proven that by investing in quality companies at a fair price – and taking a long-term view – it’s possible to make lots of money.

May those cash registers keep on ringing!

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Recent filings show that, through his holdings company Berkshire Hathaway (NYSE:BRK.A), Buffett has been selling stocks and raising cash. In fact, Buffett raised around $80bn from the sale of around half of Berkshire’s shares in technology giant Apple.

So, what is Buffett doing with all this cash? Well, here are two stocks I think he’s likely been buying.

Something close to home

Buffett has consistently purchased shares in none other than Berkshire Hathaway for 24 consecutive quarters, and I’d suggest it’s highly likely that he’s using some of the company’s $277bn for further share buybacks in the current quarter.

Share buybacks haven’t always been easy to come by for Buffett’s company. The change in Berkshire’s share repurchase policy in July 2018 allowed Buffett and his team more flexibility in deploying capital.

Prior to this change, strict limitations on buybacks based on book value prevented Berkshire from repurchasing its own shares, despite Buffett’s belief that they were undervalued by the market.

Buffett’s approach to share buybacks is strategic and opportunistic. He views these repurchases as a way to return value to shareholders when the stock is trading below its intrinsic value.

While official confirmation will be presented in Berkshire’s third-quarter results, it’s almost certain Buffett continued buying back stock. 

A personal favourite

One stock that Buffett continued investing in during Q2 was Occidental Petroleum (NYSE:OXY). In fact, it was the Oracle’s biggest purchase and recent share additions mean that Buffett has increased Berkshire’s stake in Occidental to nearly 30%. Unsurprisingly, Berkshire is the company’s largest shareholder.

Buffett tends to prefer companies that trade with relatively low valuations. However, with Occidental trading at 15.4 times forward earnings — a 28.3% premium to the energy sector — it doesn’t fit in with his normal criteria.

Nonetheless, there could be other reasons for his continued purchasing. For one, Occidental offers great margins — a sign of a quality company — with the EBITDA margin of 45.1% considerably stronger than the industry average.

Moreover, the investment serves as a hedge against oil price fluctuations within Berkshire’s diverse portfolio. Rising oil prices benefit Occidental but may impact other Berkshire holdings like its railroad subsidiary.

Likewise, Occidental is very US-focused, with 82% domestic production. This reduces geopolitical risks associated with international operations and aligns with Buffett’s faith in the US and the US economy.

Concluding thoughts

While Buffett might be putting cash to work elsewhere in Q3, it’s worth noting that the S&P 500 is near an all-time high and Buffett is traditionally cautious in such environments. He once said it’s wise for investors “to be fearful when others are greedy and to be greedy only when others are fearful.”

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