Buffett's Recent Moves: Breaking His Own Rule?
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December 23, 2024
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“Continue to invest in winners and don’t increase your holdings of losing investments” is one of Warren Buffett’s favorite rules. But Berkshire Hathaway’s recent purchases of Occidental Petroleum ($OXY) and Sirius XM Holdings ($SIRI) seem to be bending—or maybe even breaking—this principle.
A regulatory filing last Thursday revealed that Berkshire spent over $560 million buying shares of Occidental, Sirius XM, and Verisign ($VRSN) last week. However, both Occidental and Sirius XM have been struggling for months—Occidental is down nearly 25% this year, and Sirius XM has plummeted a shocking 60%.
Buffett has long been known for sticking to the rule of “holding onto winners and cutting the losers.” He once even quoted Peter Lynch, who famously said, “Cut the flowers and water the weeds”—meaning trim the underperformers and focus on the high-performers. Yet this week, Buffett doubled down on two stocks whose prices have consistently dropped below Berkshire’s average cost.
Berkshire bought almost 9 million shares of Occidental this week, with an average purchase price around $46 per share—marking a 52-week low—bringing its total stake to 28%, worth around $12 billion. Following Buffett’s increased stake, Occidental shares rose 3.9% on Friday, closing at $47.13. However, Buffett’s average purchase price is estimated to be around $53 per share, meaning the stock is now trading below that at $47. This puts Berkshire in a paper loss of approximately $1.5 billion.
Similarly, Berkshire bought about 5 million shares of Sirius XM for roughly $100 million, with an average purchase price around $21 per share—close to its 52-week low. Berkshire now holds 117.5 million shares of Sirius XM, worth about $2.3 billion, representing a 35% stake. Despite a small rally (up 12% on Friday), Sirius has been hammered this year, down nearly 60%, amid concerns over declining subscribers and a massive $10 billion debt load. Barron’s estimates that Berkshire’s Sirius XM investment could be down as much as 50%.
So, what gives? Isn’t Buffett the king of avoiding these kinds of moves? You’d think so, but maybe he sees something the market doesn’t. Buffett is known for being a long-term investor, and perhaps these companies are simply being sold at steep discounts, making them an opportunity to buy low.
Buffett’s historical bets on companies like Coca-Cola ($KO), American Express ($AXP), and even Apple ($AAPL) have paid off handsomely, as these were the definition of “winners.” Yet this year, Buffett reduced his position in Apple, missing out on over $35 billion in potential gains.
However, it’s not all about struggling stocks. Berkshire also added to its position in VeriSign, an internet domain name registry service, for the first time in 10 years. Berkshire spent about $45 million on VeriSign, bringing its holdings to 13 million shares worth approximately $2.5 billion. This has been a winning investment for Berkshire, gaining over 200% in the past decade.
So, is this a rare misstep, or is Buffett adapting his strategy to changing market conditions? The big question is whether these purchases will pay off in the long run or if they’re a sign of Buffett taking a bigger risk than usual.
What do you think? Is this a genius move, or is Buffett letting his rulebook slip? #warrenbuffett
#$Coca-Cola Company(KO)#$American Express Company(AXP)#$Apple Inc.(AAPL)#$Occidental Petroleum Corporation(OXY)#$Sirius XM Holdings Inc(SIRI)#$VeriSign Inc(VRSN)