Warren Buffett's Bold Strategy: Why He's Betting Big on Oil While Buying Back Berkshire Hathaway Shares

In the realm of investing legends, few shine as brightly as Warren Buffett, the CEO of Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B). Since taking on the role in the mid-1960s, he has guided his company to a staggering return of nearly 5,500,000% on its Class A shares as of late August. Such a record, especially when compared to traditional market indices like the Dow Jones, S&P 500, and Nasdaq, certainly attracts the attention of both seasoned traders and curious onlookers alike. Buffett’s investment strategies have become a blueprint for many, and following his moves often yields lucrative results for investors.

However, while it’s relatively straightforward to observe and mimic the investments logged in Berkshire's quarterly Form 13Fs, it’s crucial to recognize that this document often omits significant details. Notably, for an impressive 24 consecutive quarters, Buffett has been purchasing shares of a particular stock, a feat that may not be immediately apparent to the casual observer.

While maintaining a reputation for selective buying, Buffett's focus on the oil sector has become increasingly clear in recent years. For instance, Berkshire Hathaway has been involved in some net selling of equities recently, amounting to about $131.6 billion over the last seven quarters. This includes a major reduction in shares of its largest holding, Apple. Yet amidst this selling spree, Buffett has repeatedly invested in integrated oil and gas company Occidental Petroleum (NYSE: OXY). This growing stake highlights an emerging trend within Berkshire’s portfolio, as over 10% of its substantial $315 billion collection of investments is now tied up in oil stocks, primarily through Occidental and Chevron.

The reasoning behind Buffett’s persistent accumulation of Occidental shares lies within the current dynamics of the global oil market. Following several years of restrained capital expenditures during the pandemic, oil and gas producers have faced significant supply constraints. With the return of demand, the spot price for oil has seen a corresponding rise, benefiting companies like Occidental that are sensitive to fluctuations in oil prices. As a result, sustained pressure on supply stands to bolster Occidental’s revenue and overall financial performance.

However, this trend of buying shares doesn’t come close to matching the noteworthy stock that Buffett has acquired consistently for the past six years—his own Berkshire Hathaway shares. These ongoing buybacks do not appear in the quarterly 13F filings but can be traced to the company’s operating results, specifically in the share repurchase section. This reflects Buffett’s deep-rooted belief in the intrinsic value of his company, especially against the backdrop of a thriving cash position exceeding $277 billion. The pivotal change in buyback policy initiated in 2018 has allowed for more flexible purchasing conditions, enabling Buffett to steadily reduce the share count, thereby increasing the ownership percentage of existing shareholders.

The continuous buybacks serve not only to boost shareholder confidence but also enhance earnings per share—a critical metric for attracting long-term investors. Even as Berkshire Hathaway shares hover at around 162% of book value, Buffett’s aggressive buyback strategy illustrates a commitment to maximizing shareholder value and growing their stakes in the company.