Why Warren Buffett Does Not Trade Commodities

hi warren and charlie my name is catherine voorhood i'm from los angeles california i invest primarily in commodities and commodity equities i started out back in 2007 buying oil in the summer of 2008 we reached the peak of the oil bubble that's when i reversed my holdings and started shorting oil i made a nice profit in 2009 i started buying oil again and oil equities and i've been doing pretty well but given the status of the world today and the price of oil i'm questioning my investments is this another oil bubble has oil reached its peak should i keep my holdings should i short oil should i exit oil altogether and move into other commodities or other investments so my question to you is what are your sentiments regarding oil well i would say you've done a whole lot better than we have so i think the crowd would rather hear from you we actually did take a position in oil i don't know how many years ago a long time ago a long time ago it was ten dollars a barrel and it wasn't that long ago though incidentally that was in the 1990s uh although we uh we've seen oil a lot cheaper than that and east texas oil sold for a dime a barrel in 1932. the uh we really don't know i mean uh [Music] obviously you're dealing with a finite resource i don't know whether the world's up to 88 million barrels or was not around 85 million barrels but there's got to be some comeback so i wouldn't be surprised the current figure's getting pretty close to 88 million barrels a day that's a lot of oil to take out of the ground every day and and of course uh their new frontiers have been found but you are you've stuck a lot of straws into the war end of the earth and there it is a finite number so the one thing i can promise you as a almost promise you is that oil will settle for a lot more someday uh interestingly enough you know how many producing oil wells do you think there are in the united states the answer is something like 500 000. now you know there's these stripper wells there's wells out in near charlie that been going for 100 years yeah but we have looked in a lot of places now uh and what's happening of course from the standpoint of the united states companies is that the smaller countries where oil is being found now are quite a bit smarter about how they grant their concessions than people were 50 or 75 or 100 years ago so that they drive much more intelligent deals than it was originally the case when we went exploring around the world but i have no idea you know we traditionally bnsf had hedged a certain amount of oil and and uh because they obviously use huge quantities of diesel uh and i suggested to them although how they run the bnsf is up to them but i just i really didn't think we could guess the price of oil and i thought if we could guess the price of oil we didn't need to run the railroad i mean it was a took a lot of effort time to run that railroad and if if we know how to make money just sitting in a room uh trading oil why not do that instead so i don't really we don't hedge well in terms of berkshire's parent company policies we don't hedge anything in the way of commodities some of our subsidiaries do and that's fine they they they're responsible for their businesses but there are very very few commodities that i've ever thought i was going to would know the direction of their movement uh in the next six months or a year the one thing i'm quite convinced of as we talked about this morning is the fact the dollar will become less valuable over time so that the dollar price of most things uh will go up and maybe go up very substantially whether they go up enough so that you have the same amount of purchasing power after you pay tax on your nominal gains is another there's another question i really think that that an intelligent person uh can make more money over time thinking about assets that productive assets rather than than than uh speculating in commodities or when for that matter fixed dollar investments but that's maybe my own bias charlie well if we'd done nothing but oil from the very beginning i am confident that we would not have done nearly as well as we have to me that's perfectly obvious so i think what we've done is much easier than what you're trying to do and we like easy yeah we're not trying to make it any more difficult than we have to i really don't know any way to have an edge in that sort of activity if you are going to try and figure out when to be longer short oil or natural gas or copper or cotton or whatever i i don't know i don't know if people who i feel would have an edge in trying to do that over the next 10 years but i do know people where i think they'd have a very significant edge in investing in in common stocks and maybe distressed bonds for that matter too yeah trading oil worked best of all for the people who bribed nigeria that's not our milia

Channel: Ralph Khattar

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Id: c9xRQuyHB9E

Length: 6min 30sec (390 seconds)

Published: Sun Oct 18 2020