5 ms·

Buffett, Jones and Hamm: An Oil Wisdom Trifecta

21 points by RickJWagner 4y ago

Bostonian 4y ago
I think oil and gas stocks may be persistently underpriced because ESG investors underweight them. With the online broker Merrill Edge you get access to BoA research reports, and with Charles Schwab you get the reports of Credit Suisse and Morningstar. BoA and Credit Suisse analysts publish weekly reports on oil and gas stocks with price targets (and thus total return forecasts). I have used them to make some investments.
- machinerychorus 4y ago
  Yep, ESG investing causes distasteful companies to be underpriced, which creates a sort of morality arbitrage. If you're okay with funding climate change, you can make a quick buck or two. "Yes, the planet got destroyed. But for a beautiful moment in time we created a lot of value for shareholders" http://tomtoro.com/wp-content/uploads/2015/07/1-tom-toro-yes-the-planet-got-destroyed-but-for-a-beautiful-moment-in-time-we-created-a-lot-of-value-for-sh1.jpg http://tomtoro.com/wp-content/uploads/2015/07/1-tom-toro-yes...
machinerychorus 4y ago
From dinosaurs it came, to dinosaurs it will return. Buffett buys up oil companies for cheap and gets to pretend he's Rockefeller. It doesn't matter that they're bad investments, or that he's funding the poisoning of the earth, cause his clock is about to strike anyway. Kinda like make-a-wish, but for old scumbags instead of kids with cancer.
- etempleton 4y ago
  What a strange take. Buffett thinks of things in terms of ROI and certainly this will provide a ROI to him and shareholders. I can agree with you that we should be moving off oil as soon and as much as possible, but we will never be completely off oil. Oil has led to the rapid progress of humanity, but at a terrible cost for the environment. And like it or not the oil companies will have to play a large part in the shift to renewables.
  - machinerychorus 4y ago
    I just don't understand how people can believe in climate change and also believe that "ROI for me and my shareholders" is still a good way to make decisions. Buffett certainly isn't going to be an activist investor, because pushing oil companies to change will provide worse ROI than just staying the course. We need to be doing more to combat climate change, including a carbon tax. If that happens, oil companies will be much less profitable, so it seems like Buffett is betting that won't happen, which seems like a very cynical and coldhearted move. Also, let's not forget that us humans have to live in the environment, so "a terrible cost for the environment" is a terrible cost for humans. Unfortunately, that cost is externalized so it doesn't affect Buffetts precious ROI.
    - tootallgavin 4y ago
      Because at the end of a life, you either live like Picasso or live like Dalí both made fortunes, but one thought it was a good idea to give it all away I prefer to live like Dalí, the fruits of my labor are for my children
      - machinerychorus 4y ago
        That's all fine and well, I'm not saying you should give away all your money. I'm just saying that there are lots of things to invest in that aren't fossil fuels! Your money isn't the only thing you leave to your children - you also leave this planet. Do you want to give your children a planet that is more impoverished and conflict-ridden? https://www.ipcc.ch/report/ar6/wg2/about/frequently-asked-questions/keyfaq3 https://www.ipcc.ch/report/ar6/wg2/about/frequently-asked-qu...
    - pieter_mj 4y ago
      Ignoring externalities should be illegal, or even outright criminal.
    - starkd 4y ago
      Or maybe less people agree that it is really as dire as you seem to think it is.
- nerbitz 4y ago
  > old scumbags. I suggest you google what more than 90% of his assets will go towards after his death.
  - deleted 4y ago
    [deleted]
a1o 4y ago
Oil and Gas has lots of physical installations, equipment, sometimes ships,... Even if the value dipped too much, selling every asset, supposing there's a buyer available, makes some value. I remember Buffett began buying companies that the assets were valued more than the company perceptual market value and selling everything to recoup the investments. Maybe it's the way to think on these actions?
- locallost 4y ago
  Selling is not the point. It's a basic strategy pointed out by Ben Graham, that if the company is worth less on the stock market than its actual assets minus debt, it's s no brainer to invest even if the stock is unpopular.
- starkd 4y ago
  It is a signal that oil and gas are not going anywhere for a long time. Even if they were buying it for the sale of its assets, those assets would not be worth very much if oil and gas industry were in terminal decline. He is making massive investments in the field because of the prospects of future growth in the long term. He's probably entirely right too, since oil is embedded in virtually everything we do. A thriving economy depends on access to cheap and abundant energy.
flakeoil 4y ago
I cannot blame them for investing in oil and gas. Oil and gas companies get a lot of bad press and maybe rightfully so, but the sad thing is that the politicians and the users of oil and gas are the main ones to blame. If no-one used oil and gas then there would be no oil companies anymore. Politicians have known for 20-30 years or more that CO2 causes global warming, but they have done nothing to limit the use of oil and gas. Absolutely nothing. Instead they want to blame the oil companies and bring them to court. At the same time they blame oil companies, they start to reduce taxes on oil/gas, they ask producing countries to produce more etc. It's nuts. There have been no major incentives for consumers to move away from big cars with big powerful engines, no incentives for car producers to build more fuel efficient cars. We could easily have had a car fleet today which consumed 20-30% less than it actually does and that without any major drawbacks in comfort and performance. And that without even transitioning to electric cars.
- Bilal_io 4y ago
  > the politicians and the users of oil and gas are the main ones to blame. If no-one used oil and gas then there would be no oil companies anymore. Sure we can blame politicians as they're supposed to legislate, but people have had no choices. The O&G companies are not blameless, they've been hoarding money and absolving themselves of any responsibility whenever there was a spill or any other catastrophic incident, they did nothing and continue to do nothing, and if they did it was the bare minimum.
- adrianN 4y ago
  Oil and Gas companies would deserve a lot less blame if they didn't spend so much money on disinformation campaigns and lobbying to delay more ambitions climate goals.
  - Cederfjard 4y ago
    Exactly. It’s not as simple as them just serving an already existing demand. They use their very considerable resources to create and maintain that demand, to the furthest extent and for as long as possible.
- 4y ago
HFguy 4y ago
Don't really like the thesis offered in the actual link. The idea is the divergence between the equity price and the price of oil. This is the spot price of oil today. The equity is discounting future cashflows throughout the future. One explanation for the divergence is simply the market believes the price of oil will be significantly lower in future years.
mikewarot 4y ago
I don't get the sports metaphor at all... I don't watch sportsball. What I do know is that the amount of energy and material resources required to extract a barrel of oil out of ground has been slowly rising towards parity with the energy contained in that oil. I'm now of the mind that politics, the environment, and everything else is a back burner issue until this is solved. I'm starting to use the phrase "I don't give a shit about global warning" (though, actually I do), just to diffuse the politics of it, and stay on topic. There have been decades of decisions made with a total blindness to the fact that the oil we're burning is priced orders of magnitude cheaper than it should have been. As a society, we're acting like the trust fund kids spending our Earth's energy inheritance with no mind towards the future.

21 points by RickJWagner 4y ago

I think oil and gas stocks may be persistently underpriced because ESG investors underweight them. With the online broker Merrill Edge you get access to BoA research reports, and with Charles Schwab you get the reports of Credit Suisse and Morningstar. BoA and Credit Suisse analysts publish weekly reports on oil and gas stocks with price targets (and thus total return forecasts). I have used them to make some investments.

machinerychorus 4y ago
Yep, ESG investing causes distasteful companies to be underpriced, which creates a sort of morality arbitrage. If you're okay with funding climate change, you can make a quick buck or two. "Yes, the planet got destroyed. But for a beautiful moment in time we created a lot of value for shareholders" http://tomtoro.com/wp-content/uploads/2015/07/1-tom-toro-yes-the-planet-got-destroyed-but-for-a-beautiful-moment-in-time-we-created-a-lot-of-value-for-sh1.jpg http://tomtoro.com/wp-content/uploads/2015/07/1-tom-toro-yes...

machinerychorus 4y ago

From dinosaurs it came, to dinosaurs it will return. Buffett buys up oil companies for cheap and gets to pretend he's Rockefeller. It doesn't matter that they're bad investments, or that he's funding the poisoning of the earth, cause his clock is about to strike anyway. Kinda like make-a-wish, but for old scumbags instead of kids with cancer.

etempleton 4y ago
What a strange take. Buffett thinks of things in terms of ROI and certainly this will provide a ROI to him and shareholders. I can agree with you that we should be moving off oil as soon and as much as possible, but we will never be completely off oil. Oil has led to the rapid progress of humanity, but at a terrible cost for the environment. And like it or not the oil companies will have to play a large part in the shift to renewables.
- machinerychorus 4y ago
  I just don't understand how people can believe in climate change and also believe that "ROI for me and my shareholders" is still a good way to make decisions. Buffett certainly isn't going to be an activist investor, because pushing oil companies to change will provide worse ROI than just staying the course. We need to be doing more to combat climate change, including a carbon tax. If that happens, oil companies will be much less profitable, so it seems like Buffett is betting that won't happen, which seems like a very cynical and coldhearted move. Also, let's not forget that us humans have to live in the environment, so "a terrible cost for the environment" is a terrible cost for humans. Unfortunately, that cost is externalized so it doesn't affect Buffetts precious ROI.
  - tootallgavin 4y ago
    Because at the end of a life, you either live like Picasso or live like Dalí both made fortunes, but one thought it was a good idea to give it all away I prefer to live like Dalí, the fruits of my labor are for my children
    - machinerychorus 4y ago
      That's all fine and well, I'm not saying you should give away all your money. I'm just saying that there are lots of things to invest in that aren't fossil fuels! Your money isn't the only thing you leave to your children - you also leave this planet. Do you want to give your children a planet that is more impoverished and conflict-ridden? https://www.ipcc.ch/report/ar6/wg2/about/frequently-asked-questions/keyfaq3 https://www.ipcc.ch/report/ar6/wg2/about/frequently-asked-qu...
  - pieter_mj 4y ago
    Ignoring externalities should be illegal, or even outright criminal.
  - starkd 4y ago
    Or maybe less people agree that it is really as dire as you seem to think it is.
nerbitz 4y ago
> old scumbags. I suggest you google what more than 90% of his assets will go towards after his death.
- deleted 4y ago
  [deleted]

a1o 4y ago

Oil and Gas has lots of physical installations, equipment, sometimes ships,... Even if the value dipped too much, selling every asset, supposing there's a buyer available, makes some value. I remember Buffett began buying companies that the assets were valued more than the company perceptual market value and selling everything to recoup the investments. Maybe it's the way to think on these actions?

locallost 4y ago
Selling is not the point. It's a basic strategy pointed out by Ben Graham, that if the company is worth less on the stock market than its actual assets minus debt, it's s no brainer to invest even if the stock is unpopular.
starkd 4y ago
It is a signal that oil and gas are not going anywhere for a long time. Even if they were buying it for the sale of its assets, those assets would not be worth very much if oil and gas industry were in terminal decline. He is making massive investments in the field because of the prospects of future growth in the long term. He's probably entirely right too, since oil is embedded in virtually everything we do. A thriving economy depends on access to cheap and abundant energy.

flakeoil 4y ago

I cannot blame them for investing in oil and gas. Oil and gas companies get a lot of bad press and maybe rightfully so, but the sad thing is that the politicians and the users of oil and gas are the main ones to blame. If no-one used oil and gas then there would be no oil companies anymore. Politicians have known for 20-30 years or more that CO2 causes global warming, but they have done nothing to limit the use of oil and gas. Absolutely nothing. Instead they want to blame the oil companies and bring them to court. At the same time they blame oil companies, they start to reduce taxes on oil/gas, they ask producing countries to produce more etc. It's nuts. There have been no major incentives for consumers to move away from big cars with big powerful engines, no incentives for car producers to build more fuel efficient cars. We could easily have had a car fleet today which consumed 20-30% less than it actually does and that without any major drawbacks in comfort and performance. And that without even transitioning to electric cars.

Bilal_io 4y ago
> the politicians and the users of oil and gas are the main ones to blame. If no-one used oil and gas then there would be no oil companies anymore. Sure we can blame politicians as they're supposed to legislate, but people have had no choices. The O&G companies are not blameless, they've been hoarding money and absolving themselves of any responsibility whenever there was a spill or any other catastrophic incident, they did nothing and continue to do nothing, and if they did it was the bare minimum.
adrianN 4y ago
Oil and Gas companies would deserve a lot less blame if they didn't spend so much money on disinformation campaigns and lobbying to delay more ambitions climate goals.
- Cederfjard 4y ago
  Exactly. It’s not as simple as them just serving an already existing demand. They use their very considerable resources to create and maintain that demand, to the furthest extent and for as long as possible.
4y ago

HFguy 4y ago

Don't really like the thesis offered in the actual link. The idea is the divergence between the equity price and the price of oil. This is the spot price of oil today. The equity is discounting future cashflows throughout the future. One explanation for the divergence is simply the market believes the price of oil will be significantly lower in future years.

mikewarot 4y ago

I don't get the sports metaphor at all... I don't watch sportsball. What I do know is that the amount of energy and material resources required to extract a barrel of oil out of ground has been slowly rising towards parity with the energy contained in that oil. I'm now of the mind that politics, the environment, and everything else is a back burner issue until this is solved. I'm starting to use the phrase "I don't give a shit about global warning" (though, actually I do), just to diffuse the politics of it, and stay on topic. There have been decades of decisions made with a total blindness to the fact that the oil we're burning is priced orders of magnitude cheaper than it should have been. As a society, we're acting like the trust fund kids spending our Earth's energy inheritance with no mind towards the future.