Is Warren Buffett Missing Something?

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 |  Includes: BRK.A, BRK.B
by: Michael Fitzsimmons

After watching the HBO special on John Adams, based on David McCullough's book, I decided to read the book McCullough won his Pulitzer Prize for: Truman. It is a wonderfully great and very informative book. I realized while reading this book that Truman reminded me of another person - Warren Buffett. Both are down-on-the-farm types who lack pretense and place great importance on straight talk, honesty, and integrity. You cannot help but like and admire these men.

Obviously Buffett is a great investor and has built Berkshire Hathaway (NYSE:BRK.A) into a financial powerhouse. Although BRKA is down around 9% YTD, it has a very admirable long term record. Berkshire's balance sheet, as well as its dominant position in insurance and reinsurance will insure (pun intended) profits far into the future. Buffett got my attention a few years back when he took a big position in PetroChina (NYSE:PTR) and more recently when he got into railroads. He really got my attention when he took a position in one of my favorite stocks, ConocoPhillips (NYSE:COP). I was like, wow, this guy gets it! He's thinking peak oil and he's gonna make a ton of money! So, why not buy some Berkshire Hathaway "A" shares?

Then boom, the Wrigley (WWY) deal happened. Huh??

Buffett seemed to be on-board with peak oil realities. The railroads and energy investments made a lot of sense to me. But Wrigley? A company that makes gum? I know, I know, it's been around forever, has a great brand, and is just the kinda deal that has made Buffet billions in the past. But hello, $80/share at 32-time earnings ($23 billion total) for a gum company when we have oil at $120/barrel, food inflation, and a slowing economy? I hear Wrigley's directors took only 1 hour to approve the deal. I am not surprised!

Reading press releases, I see that Berkshire will only take a small $2.1 billion minority stake in the Wrigley subsidiary once the deal is done. From what I can discern, Berkshire was basically a source of financing for this deal - some $4.4 billion of subordinated debt. So, I suppose it all works out great for Berkshire shareholders (and even better for Wrigley's).

Meanwhile, I decided against buying Berkshire Hathaway stock for myself because I am a bit unsure that Buffet believes in peak oil. I thought he did. But after hearing him speak on CNBC once about it, now I am not so sure. I think he'd have done better for Berkshire Hathaway shareholders by increasing his stake in energy. He could have increased his stake in ConocoPhillips, or perhaps bought up a big chunk of a North American natural gas producer like Chesapeake Energy (NYSE:CHK). Heck, buying some railroad like Norfolk Southern (NYSE:NSC) would have made more sense to me. I think Berkshire is too exposed to the consumer and housing markets with the bricks and carpets and what-not. Buffet needs to get back to his peak oil friendly investments before I'll jump into Berkshire.

But who am I to second guess Warren Buffett? I just wish he'd use his influence, the bully pulpit that CNBC and the Nightly Business Report give him seemingly every day, and yes, some of his huge fortune, to help educate the US about the impact of the coming oil crisis if the US continues to do nothing to prepare for it. Buffet could be a huge asset if he would lend his support to the adoption of a real US energy policy. I bet Harry Truman would.