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- Warren Buffett’s Berkshire Hathaway added Verizon and Chevron to its stock portfolio.
- Buffett has avoided telecoms because he views the industry as unpredictable.
- The investor backed Occidental Petroleum in its bidding war with Chevron in 2019.
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Warren Buffett’s Berkshire Hathaway revealed billion-dollar stakes in Verizon and Chevron and on Tuesday. The conglomerate’s latest investments are surprising, because Buffett has shied away from telecoms in the past, and Berkshire helped one of Chevron’s rivals win a bidding war against it in 2019.
Betting on Verizon
Berkshire owned $8.6 billion worth of Verizon shares at the end of December, making the telecoms company one of its 10 biggest holdings. Yet Buffett has historically avoided the telecoms sector because he feels he lacks a competitive edge and struggles to predict which players will triumph.
“I have no insights that I bring to that game that I think are in any way superior – and in probably many cases not even equal – to those of other participants,” he said at Berkshire’s annual shareholder meeting in 1999.
Buffett added that a “wonderful” industry doesn’t always equate to big profits for the businesses in that space, highlighting airlines and automobiles as examples.
The investor emphasized his uncertainty about the future of the telecoms industry at Berkshire’s 2003 meeting.
"Pull out a name - BellSouth, Verizon - I have no idea how that all comes together five, or 10 years from now," he said.
"I know people are going to be chewing Wrigley's chewing gum, or eating Hershey bars, or Snickers bars five, or 10, or 15, or 20 years from now," he continued. "They're going to be using Gillette blades, they'll be drinking Coca-Cola. And I have some idea what the profitability of each one of those will be over time and all of that."
"I don't have any idea how telecommunications shakes out," Buffett added. "And I wouldn't believe anybody in the business that told me they knew, because what would they have been telling me five years ago?"
"It's just a game I don't understand," he concluded. "I don't worry about what I don't know. I worry about being sure about what I do know. And telecommunications doesn't fall within that group."
Making peace with Chevron
Berkshire revealed a $4.1 billion stake in Chevron this week, showing Buffett and his team are not only bullish on the oil industry again, but they're willing to back the oil major that lost to them in a recent bidding war.
Buffett, replying to a question at Berkshire's meeting last year about its investment in Occidental Petroleum, underscored his doubts about the oil sector.
"If you're an Oxy shareholder, or any shareholder in any oil-producing company, you'll join me in having made a mistake so far in terms of where oil prices went," he said. "Who knows where they go in the future?"
Buffett said that Berkshire's $10 billion investment in Occidental to help finance its takeover of Anadarko Petroleum in 2019 was "attractive" given the prevailing oil prices at the time. However, the acquisition "doesn't work at $20 a barrel," he continued, as it's no longer profitable to drill in many places.
Oil has rebounded to north of $60 a barrel since then, but it's still notable that Buffett and his deputies invested in Chevron last quarter despite their recent scrape with low oil prices.
Moreover, Occidental and Chevron were rival bidders for Anadarko. Berkshire's deal with Occidental enabled the energy group to outbid Chevron, which declined to raise its offer after Anadarko's board switched its recommendation to Occidental's deal. The company walked away with a $1 billion breakup fee for its trouble.
Chevron CEO Michael Wirth explained his decision not to make a counter-offer in a statement at the time.
"Winning in any environment doesn't mean winning at any cost," he said. "Cost and capital discipline always matter, and we will not dilute our returns, or erode value for our shareholders for the sake of doing a deal."
Buffett has largely eschewed bidding wars in the past, viewing them as a recipe for overpaying as a buyer. Wirth's discipline and shared stance on the matter may well have been a factor in Berkshire's decision to invest.