2021: Why did Buffett buy Chevron shares?

BECKY QUICK: This question comes from Andrew Dixon in the UK.

He says, “My question is in relation to the oil and gas business and your purchase of Chevron stock.

“When being asked a question on tobacco stocks in 1997, you mentioned that individuals and companies occasionally have to draw moral lines about what they’re willing to do.

“You stated at the time that you were not comfortable in making a big commitment in tobacco stocks, and that you were uncomfortable about their prospects.

Charlie has also referenced passing up on a private tobacco deal that you both knew was a cinch, yet you both have no regrets in saying no to the transaction.

“I’m not suggesting that the oil and gas business has the same known negative externalities as cigarettes. They do not. With tobacco, the cause and effect relationship between the products and career is direct, obvious, and measurable. With hydrocarbons, the societal costs and benefits are far more complex to evaluate.

“However, an increasing portion of society is drawing their lines in such a way that their painting does not include hydrocarbons, period.

“My question is: has the alarmism from the climate community now become pervasive across society to the extent it has become irrational?

“Have we built our own unrealistic consensus on the pace of change achievable with regards to the transition to greener energy sources to the extent that this is becoming an overly expensive tax worn by the current younger generation?”

“Can we gather from your purchase of Chevron stock that you do not believe the howling from society, regulators, and politicians will impair the prospects of hydrocarbons, and Chevron for that matter, in the next ten years?

“Can investors still assume an oil and gas business that finds and produces oil at low cost per barrel can generate a sufficient return on capital for a long time to come?”

WARREN BUFFETT: Well, (laughs), I’ll give you a ten-word answer to that. (Laughs)

I can’t remember all the questions there were there. But I would say that people that are on the extremes of both sides are a little nuts. (Laughs)

I would hate to have all the hydrocarbons banned in three years. You know, you wouldn’t want a world that — it wouldn’t work.

And on the other hand, you know, what’s happening will be adapted to over time, just as we’ve adapted to all kinds of things.

I do not think — I’m interested in that quote from 1997, because, you know, we’ve talked about this before.

We have no problem owning Costco or Walmart, you know, and a substantial number of their stores, you know, they sell cigarettes. It’s big item. You know, it’s something that brings people in. They know the price of cigarettes. And, you know, they put them up front.

And so, we don’t — it’s a very tough situation. We made that decision a long time ago when we went to Memphis. And we looked at a business that was a very, very good business. And it was much less harmful — at least from everything I could find out — it was much less harmful than smoking tobacco — chewing tobacco was.

And these were decent people. And they were running a legal business. And they all chewed tobacco themselves. (Laughs)

So, they — and they told me that their mother was 100 and chewing tobacco, and all these things.

But Charlie and I did go down in the lobby of that hotel. And we just said to ourselves, “This is probably the best business we’ve ever seen.”

And I called my then-son-in-law, Allen Greenberg. And he’d studied chewing tobacco and its effects when he was working for a Nader-related organization (Public Citizen). And we decided not to do it.

But, you know, would we — you know, I see — I used to see ads in our paper from financial companies where I knew they were terrible, you know?

And it’s a very tough thing to decide whether you get in or out of a business. And it’s a very tough time to decide what — would companies benefit society more than others. I mean it’s — I don’t know whether — I think Chevron’s benefited society in all kinds of ways. And I think it continues to do so.

And I think we’re going to need a lot of hydrocarbon for a long time, and we’ll be very glad we’ve got them.

But I do think that the world’s moving away from them, too. And that could change.

I don’t like making the moral judgments on stocks in terms of actually running the businesses.

But there’s something about every business that, if you knew it, you wouldn’t like.

And, you know, meatpackers — have you ever gone through a meatpacking plant? (Laughs)

You know, there’s — if you expect perfection, you know, in your spouse or in your friends or in companies, you’re not going to find it.

And what you elect to do yourself — if you own an index fund, you’re going the own Chevron.

And believe me, Chevron is not an evil company in the least. (Laughs)

And I have no compunction about owning — in the least — about owning Chevron.

And if we owned the entire business, I wouldn’t — I would not feel uncomfortable about being in that business. Charlie?

CHARLIE MUNGER: Well, I agree.

You know, you can imagine two things. A young man marries into your family. He’s a English professor at, say, Swarthmore, or he works for Chevron. Which would you pick, sight unseen? I want to admit I’d take the guy from Chevron. (LAUGHTER)

WARREN BUFFETT: Hope your daughters agree with you. (LAUGHTER)