No new trades this week as I am still being careful. Gold hit 3000, much to my dismay.
Been monitoring Occidental Petroleum (OXY) for some time, of which Warren Buffett’s Berkshire Hathaway is the largest shareholder. While has has preferred stocks which gives him a good deal, generally speaking his average price should be above 50 USD per share. The price now is about 46, and next week I may attempt to see if I can get some at 45. Right now oil prices looks like it will fall, particularly if the Russian-Ukraine war ends. All signs point to a drop in share prices of oil producing companies, so I have no idea why Warren Buffett keeps on buying. To be really honest, this trade is more of a copy homework trade, rather than something which I did my due diligence and stake my money on. In fact, all my analysis points to a conclusion that investing in this company does not make sense.
However, it is not like I blindly copy Warren Buffett’s every trade, but it seems like he knows something about this particular stock which I do not. Either way, I sort of ‘hedge’ this trade by buying Sinopec, an oil refining company in China, which will have bigger profits if oil prices drop.
Generally, oil producing companies earn more when oil prices go up, and earn lesser when oil prices go down. That is because the fixed cost of producing oil remains the same, but the revenue is affected by the oil prices. For oil refining companies, they value add on the oil which they buy. Oil is part of their cost, so if oil prices go down, their cost go down and their profits go up. By buying Occidental Petroleum and Sinopec, I copied Warren Buffett in this investment yet at the same time have a hedge against it.
I do not know how all these will turn out in the end, so I am only buying a small stake to see how it goes.
