Buffett Makes His First Major Investment In 2020. Here’s Why.

Speaker 1: For those who have been following Warren Buffett, like myself, you will know that he has not bought any major stocks in 2020. On the other hand, he’s done a lot of selling this year. He sold completely out of his airline stocks. He sold a lot of his bank stocks and a range of others.

But buying stocks now, he hasn’t really done anything. That is up until now. I don’t know if you guys have heard the news, but finally, Warren Buffett is reaching into his checkbook for ten billion dollar deal and Dominion Energy’s natural gas assets. OK, so that might sound a bit confusing to some people. So let me break that down. Dominion Energy is an energy stock that supplies electricity for some parts of the USA, as well as natural gas to other parts of the USA. However, Dominion Energy have made it clear that they’re trying to become a company that focuses on clean energy production. So this means that they’ve got a whole natural gas section there they’re willing to sell. Warren Buffett, he comes along, he sees this natural gas business for sale, a business in which he is already in, and he decides to buy it at a price that he found appropriate. So what he did was he put in four billion dollars and assumed five point seven billion dollars in debt to buy the natural gas transmission and storage assets of Dominion Energy. So that deal comes almost to a total of 10 billion dollars.

Now, the interesting thing is that Warren Buffett was already in the natural gas business before he bought these assets from Dominion Energy. So before this, Buffett’s Berkshire Hathaway owned eight percent of all interstate natural gas transmission in the United States after this by this number has increased to 18 percent, largely growing their footprints in the natural gas energy business. So I want to quickly go over the details of this purchase from Buffett before we get into the reasons why Buffett made this purchase and finally opened up his investing wallet this year. So what exactly did Buffett’s Berkshire buy? All right. They acquired 100 per cent of Dominion Energy Transmission, QSR pipeline and Carolina gas transmission, and they bought 50 percent of Iroh Chris gas transmission system. Berkshire will also now own 25 per cent of Cove Point’s LNG, which is an export import and storage facility for natural gas based in the United States, all included at 7700 miles of natural gas storage and transmission pipelines and about 900 billion cubic feet of gas storage, gas pipelines and gas storage put. Basically, that’s the facts of the acquisition. But let’s get into the reasons why, which to me is absolutely fascinating. OK, so we all know that right now in the stock market, it’s not easy to find a good deal. Most things are selling at a premium price tag, and that’s to say the least. But it does not matter what market condition that you are in.

There will always be opportunities. And I don’t know if you remember a couple of months ago, there was this big crash in both the price of oil and natural gas. I mean, in just a few months, oil went from sixty dollars a barrel to eighteen dollars a barrel because obviously of the lockdown situation that the world was and is facing. The same with natural gas. It went from being priced at two point eighty to a dollar forty. This left a range of very cheap stocks in this particular sector. And I actually made a video on this in late April on three cheap oil stocks to buy. By the way, the interesting thing was I got a lot of hate in this video on the stocks that I recommended. Just go check out the comment section if you want. Yet the stocks that I mentioned are actually doing very well, ones up 65 percent, the others up 18 percent, and the others actually down three percent. It just shows you never go with the crowd, go with your calculated decision based on the facts. Anyway, let’s go back to Buffett. So oil and natural gas was and still is cheap while the rest of the market is expensive. This obviously gets Buffett’s attention. I mean, he’s sitting on one hundred thirty seven billion dollars of cash and he wants to get this to use, especially if he can find something at a good price tag. So Buffett, he starts to look at the stocks that he can understand the likes of natural gas and which he is already in. And obviously he comes across this Dominion energy deal. Now, I don’t know exactly how this works of Buffett cause them they call Buffett or they’re some billionaire network. US regular people don’t know about either way, Buffett manages to find and closed this deal. This does put some of his gigantic cash pile to use, but still, he’ll have his eyes peeled for some more deals like this for the rest of that.

One hundred thirty three billion dollars. Now, for me, there’s a couple of things that we can learn from this major acquisition of Buffett’s. The first thing is it does not matter what market that you are in. There will always be deals that come along as long as you keep looking. You know, a couple of months ago, Buffett said, we have not done anything because we don’t see anything that attractive to do. If we really liked what we were saying, we would do it. And that will happen someday. And which Buffett he stuck to his word. You can bet your bottom dollar. Buffett was in that small office of his sitting at his dad’s old desk, reading through your reports, looking for a deal, and eventually came along because he didn’t stop looking. The other thing that I would say that we can take away from this acquisition is that oil and natural gas stocks still appear to be cheap. You see, most people, they look at things based on the very short term. So they think because oil’s gone up recently, it must be expensive. But you have to look at things from a long term basis. You have to. So let’s look at the price of oil. 10 years ago, oil was selling for a hundred and ten dollars per barrel. Today, forty dollars per barrel, a big discounts. Natural gas is an even bigger discounts. Buffet knows this because he’s looking at long term investments. 10 years ago, natural gas was selling at a price of four point eighty. Today, it’s sulien for a dollar eighty. If Buffett made this investment 10 years ago, it would have been three times the price. But as we all know, Buffett’s investing mantra is buying things at a discount to what they’re worth. And it certainly seems that he’s done this with Dominion Energy Deal. The third takeaway that I got from this purchase of Buffett was that he’s not afraid to go big when necessary. This is his largest acquisition that he has made in four years time. And I often point this out to young investors. If you find a good deal, one that you understand well, don’t be afraid to go big on it. As Buffett says, when it’s raining gold, reach for the bucket, not the thimble. That’s exactly what he’s done with this investment here. He puts out four billion dollars and he’s taken on an extra five point seven billion in debt to acquire these natural gas assets. And a lot of investors, they’re questioning this deal. You see, there’s this big movement towards sustainable energy.

A lot of governments, people, lobbyists, communities are pushing towards sustainable options. They don’t like fossil energy. In fact, I’d go as far as saying that they hate it. This is one of the main reasons why Dominion Energy sold in the first place. Dominion CEO Tom Farrell said that the investment in gas transmission and storage had become increasingly litigious, uncertain and costly. The other thing that Buffett takes on is tough times and the short term. We all know right now the world just doesn’t need as much natural gas as it did last year because we’re not operating the same as we were last year in terms of business. So Buffett takes on quite a few concerns with this investments. But what a lot of investors don’t take into the equation is the price of these natural gas assets that Buffett is digging his teeth into. At the end of the day, if something is cheap enough, it can always be a good investment. And I bet, yeah, Warren Buffett is getting these assets for an absolute song and a dance. Also, let’s be honest, at some point in the future, the world will go back to running the way it was. Businesses will get back to work, people will start traveling again, factories will be running at full steam. And all of this means natural gas, energy consumption will recover in the short to medium term, also the long term. I don’t think Buffett is as concerned as most investors are on this change to clean energy. Yes, it’s all the rage. But let’s look at the facts globally.

As per 2016 Stets renewables made up 24 percent of electricity generation. So by far, most of this energy is not coming from renewables and it’s going to take a lot more decades before it becomes fully sustainable. Therefore, demand for natural gas will be required. And the long. Term, making this natural gas investment of Buford’s a lot safer than many predict, so we can conclude that, yes, Buffa has finally opened up his checkbook for the year, but we have to realize this was because he found a one off deal in the natural gas sector as per the rest of the sectors of the stock markets. But it is still struggling to find any deals. He’s still cautious. He’s still sitting on over 100 billion dollars in cash and he’s hoping for more deals like this to come along.

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