Field of Play
WORDS OF INVESTING WISDOM
on the commodity intensity of that economy and the world. I believe that’s the investing story of this decade and beyond. Andrew Pilara, 4.30.07
The physics make sense to us that this is a resource that’s being used up. Every major field outside of Saudi Arabia is in decline. Those people who talk about this endless supply of oil regenerating and bubbling up from the center of the earth, where is it? We started working through the alternatives: nuclear power, solar, wind, oil shale, coal-to-gas. I made myself crazy one weekend trying to figure out the potential for ethanol. All of these have their own problems – from safety, to capacity constraints, to cost, to lead times – and it’s going to be hard for any of these to compete with oil even at today’s prices. Bruce Berkowitz, 4.28.06
Given energy’s commodity nature, it’s all about how [energy-company] management allocates capital in a capital-intensive business. What’s interesting is that the survivors in the worst times are the ones who are thriving now when times are good. It gets back again to managing through tough times, which I find a fascinating process to study. Philip Tasho, 9.28.07
We’re very constructive on naturalresources businesses over the next five to ten years. We look for situations where there is a steepening of cost curves and the discrepancy between structurally advantaged assets and the marginal producer is increasing over time. We see those in any number of different commodities markets today. I’d argue that the cost or otherwise advantaged naturalresource company has a bigger and longer-lived advantage versus its competition than in almost any other segment of the economy. MacKenzie Davis, 12.21.07
Winter 2008
I believe the service companies are more attractive than producers in the current environment. Whether oil is $40 per barrel or $70 per barrel, I’d argue it’s not going to have that much impact on demand for services. Many of the big oil companies have declining reserves and will be desperate to add reserves. To do that, they’ve got to spend on finding and developing new production or getting more production out of what they already have. Robert Robotti, 8.25.06
The lack of investment in developing energy resources was so profound for so long that we expect to see inelastic, higher prices for a very long time, regardless of the fall in oil prices of late. John Burbank, 8.31.08
The entire energy sector appears to be attractively priced right now, so our focus is on the stocks offering the best relative value and those that may have other catalysts than oil prices that will cause the share prices to move. Edward Maran, 10.31.08
We still don’t believe long-term, marketclearing oil prices have moved to a level substantially higher than $40. I know it sounds silly because that’s barely half of what prices are today. But if the oil companies themselves believed the long-term price was much above $40, they would be www.valueinvestorinsight.com
investing more in trying to find new sources of oil and gas. On the industrial side, companies are not making energysaving investments that require $50-60 oil to pay off. If these investments on both sides were being made, we believe you’d see tremendous oversupply – demand would fall sharply and supply would go up significantly. Bill Nygren, 7.28.06
I was surprised to read even smart people like [Princeton economist and New York Times columnist] Paul Krugman say oil couldn't be in a bubble because there was no stockpiling. That to me showed a distinct lack of understanding of what was going on. Companies were, in effect, stockpiling quite aggressively by not extracting oil that was economically viable. That stockpiling in the ground, so to speak, created a speculative bubble that we expected to burst, set off by a downturn in the economy. James Montier, 10.31.08
I love the videogame business. It’s a highmargin, high free-cash-flow business with remarkable installed-base growth. There’s a gigantic secular tailwind behind this business, which is unstoppable. We’re in the midst of a massive change in the world of media, broadly defined, and videogames will continue to take time away from old media. People of the proper investment age don’t get it, so it’s unlikely for this change to be fully discounted in share prices. Lisa Rapuano, 9.28.05
Educational systems are generally geared to educate the elite, not the masses. But the industrial economies of the past, where you just needed a few highly educated people while the vast majority of people were working on production lines or delivering stuff, are being turned on their heads. Now nearly the entire population needs training and education that goes past age 18. So there’s no question the sheer number of students is going to Value Investor Insight 6