Andrew Bary
One of Warren Buffett's favorite maxims is to stick with winners and not add to losing investments.
His Berkshire Hathaway seems to be violating that principle with its recent purchases of Occidental Petroleum and Sirius XM Holdings stock.
In his 1988 annual shareholder letter, Buffett touched on the topic and gave credit to Peter Lynch, who was then a superstar equity manager for Fidelity, running the Fidelity Magellan fund.
"We are just the opposite of those who hurry to sell and book profits when companies perform well but who tenaciously hang on to businesses that disappoint. Peter Lynch aptly likens such behavior to cutting the flowers and watering the weeds," Buffett wrote.
Buffett has generally hewed to that approach over the years, sticking with such big winners as American Express and Coca-Cola in Berkshire's $300 billion portfolio.
But he went against principle when he cut Berkshire's stake in Apple this year by two-thirds, to 300 million shares. In doing so he left more than $35 billion on the table and incurred a sizable tax bill that could total $20 billion, Barron's estimates.
Both Occidental and Sirius XM stocks are down sharply this year and have been trading below Berkshire's average cost. Berkshire purchased 8.9 million shares of Occidental from Tuesday through Thursday for about $405 million at an average price of $46, bringing its holdings to 264.2 million shares, a 28% stake worth around $12 billion. Occidental has been one of Buffett's largest purchases in recent years.
Berkshire bought the stock at its 52-week low after having been absent from the market for Occidental since June. Its average cost is around $53 a share, Barron's estimates, resulting in a paper loss of about $1.5 billion.
Occidental shares were up 3.9% to $47.13 Friday as investors took comfort from the Berkshire purchases.
Berkshire bought about five million shares of Sirius, the satellite radio company, for more than $100 million from Tuesday through Thursday at an average price of about $21, near its 52-week low. Berkshire now holds 117.5 million shares worth about $2.3 billion. Its stake is about 35% of the company.
Berkshire has been buying the stock all the way down this year, starting with purchases of a Liberty Media tracking stock that merged with Sirius XM in September. Sirius XM stock was up 12% to $23.08 Friday but is down almost 60% this year.
Investors are concerned about potential losses in subscribers in 2025 from an aging customer base, a small recent cut in financial guidance for next year, and a sizable debt load of $10 billion.
The Sirius holding is believed to be run by Berkshire manager Ted Weschler, who handles a total of about 10% of the equity portfolio along with Todd Combs. We estimate Berkshire could be down as much as 50% on the Sirius XM investment.
Berkshire didn't respond to a request for comment.
Berkshire also added to its holding in VeriSign, which offers internet domain name registry services, for the first time in 10 years. It purchased about $45 million of VeriSign and now holds 13 million shares worth about $2.5 billion. That investment has been a winner for Berkshire, gaining over 200% in the past decade.
Write to Andrew Bary at andrew.bary@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
December 20, 2024 16:39 ET (21:39 GMT)
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