Debunking Warren Buffett’s Phillips 66 Investment

If Warren Buffett did not recently agree to buy Precision Castparts for $32 billion, I think he would have considered finding a way to buy Phillips 66 outright. The problem is that the company’s market cap is around $42 billion, and when you factor in the necessary premium to purchase a business outright, it would have likely consumed all $60+ billion of Berkshire’s resources and put the company’s cash hoard below the $20 billion desired level. So he had to settle for a $4.5 billion, 10.8% stake instead.

Much of the conventional reaction to Buffett’s purchase can be found in the Wall Street Journal or in the litany of analyses offered by Seeking Alpha writers, and I just want to address two of the specific conventional wisdom claims that you have read about Buffett’s Phillips 66 purchase.

Conventional Wisdom #1: Buffett’s purchase of Phillips 66 is “proof” that he thinks Read the rest of this article!