Buffett Dumps a Lot of Oil Holdings - How About You?

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Earns Berkshire Hathaway
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By Sarah Morgan

If you know the name of only one professional investor, chances are it's Warren Buffett. His reputation among both pros and individual investors is rock-solid. A single class A share of his company's stock (BRK-A) costs more than four times the median annual salary in the U.S. His annual letters to shareholders in Berkshire Hathaway (BRK-B) are studied by people around the world, and his portfolio is scrutinized just as closely.

So it's no surprise that the news that Berkshire Hathaway sold out its position in Exxon Mobil (XOM) has gotten a lot of attention.

Like every institutional investor that manages more than $100 million, Berkshire Hathaway has to report its holdings at the end of every quarter. These filings are available to the public, so anyone can see what Buffett is buying and selling, although at a significant delay (45 days after the end of each quarter). Berkshire Hathaway filed its report for the fourth quarter on Feb. 17, and the company's decision to sell its entire stake in Exxon, worth almost $4 billion, became big news. In addition to selling off its Exxon stock, Berkshire Hathaway also dumped the rest of its small stake in ConocoPhillips (COP) and sold some of its shares of National Oilwell Varco (NOV).

Some Investors Follow

Some individual investors may have followed Buffett's example. Data from investment management firm SigFig shows a recent spike in selling activity from everyday investors. Almost 35 percent of Exxon investors who track their portfolios with SigFig were selling in the first week of February, up from just under 30 percent in January; 42 percent of ConocoPhillips investors were selling in February, up from just under 31 percent in January. Still, individual investors remain generally optimistic on both of these stocks. More than 65 percent of Exxon investors, and more than 58 percent of ConocoPhillips investors are still buying these stocks.

The news about Buffett's exit comes at a tough time for Exxon and the oil industry in general. Oil prices have basically been cut in half in the past six months. But Buffett isn't out of energy altogether. In addition to National Oilwell Varco, Berkshire Hathaway still holds positions in Now (DNOW), an oil and gas distributor, Suncor Energy (SU), a Canadian oil sands company, and Phillips 66 (PSX), a pipeline company. And while plenty of analysts are warning investors off of energy companies right now, some hedge funds are bargain-hunting in the sector.

Two-Year Investing Is Like Day Trading

So should individual investors follow Buffett's lead and get out of Exxon? Perhaps not so fast, says Paul Nolte, senior vice president and portfolio manager at Kingsview Asset Management. For Buffett, Exxon was a relatively small, short-term investment, Nolte says. Berkshire Hathaway started buying Exxon in early 2013. For an investor who famously said his "favorite holding period was forever," a two-year investment isn't even close to long-term. "This might be day trading for Warren Buffett," Nolte says. "It may well be that he's looking at it as a commodity business, and Exxon doesn't have any distinct advantage over any other oil producer," he says.

Investors should keep in mind that Warren Buffett is a smart guy, but he's not perfect, Nolte says. "He has stumbled at times. This may very well be one of those times," he adds. Buffett is a great investing role model to watch in terms of his overall investing philosophy, but investors shouldn't try to match his every move, Nolte says. "There are a lot of stocks that he does not own that have done extremely well over the last five years," he says. And for what it's worth, Nolte says his firm is buying energy right now, because they believe the drop in oil prices has made these stocks relatively cheap.

The best lesson to learn from Warren Buffett is probably not exactly when to buy or sell a specific stock, but to stay focused on the long term, and avoid churning your portfolio. The more you trade, the less you earn, as timing and trading fees eat into your gains. Be like Buffett and look for stocks and funds you'll feel comfortable holding onto forever, or close to it.

Sarah Morgan is a contributing writer at SigFig. Nearly a million people use SigFig to track, improve and manage over $300 billion in investments.
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