Warren Buffett Just Made a NEW $10B Investment

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Hey guys, welcome back to the channel! In this video, we are going to be talking about, you guessed it, Warren Buffett because he's finally made an investment. This is his first investment in the new world that we currently live in, his first major investment of the year. So I thought we had better discuss it here on the channel and it comes at an interesting time too because Warren Buffett has been copping a fair amount of criticism over particularly the last six months because of his inactivity.

Like we saw, what happened with the global shutdown, the market tanked 35% and over that time Warren Buffett was a net seller of stocks which seems pretty staggering. But there are a couple of reasons for this. One of the reasons was that the 135 billion dollar cash pile that Berkshire has; he said that a fair amount of that he wants to keep on the sidelines just in case a worst-case scenario happens for Berkshire and actually have to tap into that massive cash part.

But the other reason why he wasn't investing basically at all is because, quite simply, he said there were no deals that were big enough first of all for Berkshire Hathaway and there were no deals that were enticing enough for them to actually pull the trigger and take action. But now that has changed, so let's talk about it.

What was this investment? He's sunk nine point seven billion dollars into an investment in a company called Dominion Energy. But wait just a second because that last sentence was a little bit deceiving; he didn't actually make an investment into the company Dominion Energy; he didn't buy a stock in that company. In fact, he made an acquisition of some of Dominion Energy's assets.

So the deal was this: Berkshire Hathaway used about four billion dollars worth of their cash and took on 5.7 billion dollars of Dominion Energy’s preexisting debt in order to acquire seven thousand seven hundred miles of gas pipelines and nine hundred billion cubic of gas storage. So this deal was done to add assets to one of Berkshire's wholly owned businesses and that is, of course, Berkshire Hathaway Energy which is run by Gregg Abel.

This is a really interesting deal to have a look at because there were two factors why this deal actually happened. The first is that Dominion Energy is actually looking to divest from dirty power sources, so they are actually looking to offload these dirty power assets that they've got as they want to focus more on sustainability.

Then you've got, on the other hand, the other factor is Warren Buffett has obviously got cash to deploy and is looking for great deals. Greg Abel is wanting to make Berkshire Hathaway the biggest, most competitive company it can possibly be. So with those two factors, obviously there was a deal to be done.

This is a really interesting example to have a little bit more of a look at the two sides of the coin because on one hand you've got Dominion Energy saying that they're actually looking to get away from dirty power as what they've found more recently is that they are running into some quite severe roadblocks. Because, of course, these days it is not uncommon for activists or environmental groups to do everything in their power to try and stand in the way from new oil or new gas pipeline projects actually going ahead.

In fact, it was only four days ago that Dominion Energy and Duke Energy came out and said that they were cancelling the 600 mile Atlantic Coast pipeline after six years of ongoing legal battles with environmental groups. They said this is a necessary decision given the legal uncertainties facing the project, aka the activists actually got him.

As a company that faces those sort of challenges where your new gas projects are just constantly being interrupted and it's taken years and years and years for actually anything to happen for them, it just makes more sense to divest from those operations altogether and just to focus on renewables more where there’s literally no one standing in your way.

But then the Berkshire Hathaway side of the coin is this: they've got to acquire for a good price. They got to acquire these natural gas pipelines and natural gas storage and that's going to significantly beef up the gas portion of their Berkshire Hathaway business.

And the thing, whether we like it or not, the demand for natural gas over the next 10, 20, 30 years is only going to go up. The reason for that is that at the moment natural gas is kind of viewed as like this middleman as we transition away from the dirtier sources of power like coal and oil over to the renewables.

So what we find is that the combustion of natural gas emits about half the carbon as what the combustion of coal does for our power generation. So for that reason, because natural gas can support the grid as we transition across, it is literally viewed as a bit of a middleman.

So yes, while coal and oil are definitely getting phased out when it comes to power generation and yes renewables are definitely coming up very quickly and eventually will just be a hundred percent renewables, a hundred percent sustainable power, and yes, eventually natural gas will just get phased out as well, at the moment it's not looking like that's going to happen anytime soon.

That's why estimates for gas demand currently are only going up. Now, of course, like a lot of people I know, particularly like this, I just wish that there was global monster investment into renewables so much so that we could just forget about gas at the same time that we forgot about, you know, oil and coal.

But unfortunately, that just doesn't seem like what's actually going to happen. See if you have a look at this chart from the International Energy Agency, this is what the future of energy is likely to look like based on already stated future energy policies. As you can see, coal basically goes nowhere, oil declined substantially, nuclear goes nowhere, but gas alongside wind, solar, and hydro rise quite dramatically.

In fact, gas has the steepest gradient after wind and solar. So from Berkshire's perspective, yes they've acquired these natural gas assets. Eventually, yes natural gas will be phased out as well, but that will be more of an ultra-long-term thing and over the next 10, 20 years, as we just saw, the demand for natural gas is only going to go up. Thus it seems like they've made a really smart purchase for their Berkshire Hathaway business.

So with all that said, it looks like both parties, Dominion Energy and Berkshire Hathaway, pretty much got exactly what they wanted and I guess that's why the deal went through. Dominion Energy got what they wanted; they wanted to divest from the dirty power sources so they can focus more on renewables.

That's exactly what they got. Berkshire Hathaway saw an opportunity to get these natural gas assets at a good price and bolster up their own Berkshire Hathaway Energy business, and that's exactly what they got. So at the end of the day, both parties seemed to have won; they got exactly what they wanted.

But yeah, very interesting, obviously, Warren Buffett's first major investment in quite a while. Probably he probably wouldn't have made a ten billion dollar investment in years. Like, literally, he hasn't been making those sort of plays in quite a while, but he's done it now.

Of course, I'd love to hear from you guys. What do you think of this deal from Buffett to acquire these assets off of Dominion Energy? Do you think it makes sense? Do you think it's rubbish? Would you prefer Berkshire Hathaway to have put that money straight towards more renewable energy? That's probably the way that I would have liked to see it play out.

But I think Warren Buffett's more thinking about the best possible deal; he's thinking much more about the economics as opposed to just the raw ethics of this situation. Anyway guys, I'd love to hear your opinion, so make sure you drop that stuff down in the comment section below.

And of course, if you enjoyed the video or if you found it useful, make sure you give it a like. We need to get the message out there; we need more people's eyes in front of Warren Buffett videos. So make sure you leave a like and subscribe to the channel if you haven't done so already.

That'll do me for today, guys. Of course, check out the profitable links in the description if you would like to learn the Warren Buffett style investing strategy. It's a step-by-step guide; it's an eight-hour course. It is completely in-depth and it goes through the four key pillars of value investing. So make sure you check that out; links in the description.

But that will do me for today. Thanks very much for watching, guys, and I'll see you all in the next video. Thanks for watching the video, guys! I just wanted to let you know that this video is being sponsored by Steak. So if you don't know Steak, Steak is the brokerage platform that I use to trade US stocks.

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