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What Is Buffett's Plan With ExxonMobil?

Jay Yao
November 18, 2013

On Thursday November 14, news broke that Berkshire Hathaway (NYSE: BRK-B) recently established a roughly 40 million share position in ExxonMobil (NYSE: XOM). 

The roughly 40 million share position amounts to about 1% of ExxonMobil's total outstanding shares and makes up around 4% of Berkshire Hathaway's portfolio in dollar terms. 

Purchase fits Buffett strategy
Warren Buffet's strategy is well known. He likes to buy companies with large moats, competitive advantages, and predictable cash flows that will be around for a long time. 

The ExxonMobil purchase fits very well with that strategy. As the largest non-government owned oil company, it has immense economies of scale, considerable expertise in complex projects, numerous government connections, a fortress-like balance sheet, and a low cost of capital. 

In terms of dividend predictability and share repurchases, ExxonMobil is unmatched. The oil giant has paid a dividend every year since 1911 and has raised its dividend for 31 straight years. The company has also spent an astounding $207 billion in share repurchases over the past decade. That $207 billion in share buybacks is larger than the market capitalization of all but 11 components of the S&P 500. 

ExxonMobil also fits another Warren Buffett criteria, which is having low share price volatility. According to the Yale paper, Buffett's Alpha , the secret to Warren Buffett's success is that he buys low volatility stocks that don't fall very much in bear markets but perform similarly well in bull markets and levers them up with low cost insurance float. 

Because his insurance float is at little to no cost, Buffett does not need to have his stocks outperform to beat the marke