“Be fearful when others are greedy and greedy when others are fearful,” Buffett has said. Essentially he is saying it’s okay to go against the crowds sometimes— if everyone is going crazy for a stock, it isn’t the time to buy it, it’s the time to sell it! This could easily be the reasoning behind Buffett selling off his Kinder Morgan stock; as of the end of the 3rd quarter Berkshire Hathaway has already liquidated almost 25% of it’s holding in the company.
Kinder Morgan, Inc is an American company that runs out of downtown Houston. It is the largest company specializing in energy infrastructure on this continent, and typically focuses on oil and gas pipelines. With that being said, it is no surprise that Kinder Morgan took interest in the Trans Mountain Pipeline system— the only pipeline transporting crude/refined oil from Alberta to British Columbia.
The proposal for the expansion of the Trans Mountain Pipeline has officially been approved, and will add more than 600 miles of new pipeline. With this, capacity will increase from 300,000 barrels of crude and refined oil each day to 890,000. Obviously this will increase profit, but with construction starting in 2017 and expected to last until the end of 2019, it’s going to take a while to see that return.
It could be your basic “buy the rumor, sell the news” occurrence. Everyone heard the rumors that Kinder Morgan stock was going to skyrocket with the approval of the Trans Mountain expansion project. When those rumors rose, so did the stock— 53% so far this year. This puts Kinder Morgan, or any stock that is experiencing the phenomenon, at a high risk of profit taking— something that Berkshire could be taking advantage of.
Honestly, this is a little bit of a mystery for me. Buffett is known for finding investments that will be good for the long haul, and seemingly in a few years Kinder Morgan should have a nice return. As of now Kinder Morgan does not have any safe and consistent cash flow, it’s high risk, and it has a very small yield. Perhaps, Buffett thought it was time to find a sure thing.