Warren Buffet once advised to buy into a business that any idiot can run, because sooner or later, one will. Harsh words from America’s favorite investing icon, but not far off base.
I’m not sure if this proves Buffett’s point, but the management team at Freeport McMoRan Inc, just filed for an initial public offering of common stock in Freeport-McMoRan Oil & Gas. The same business Freeport’s management team acquired in 2012. Prior to the acquisition of the oil and gas business, Freeport was one of the largest pure-play producers of copper and gold. Many investors bought the stock for exposure to copper. The acquisition of the oil & gas business muddied the waters for investors focused on the company’s copper assets.
Now only two and a half years after buying into the oil business and after a 40% plunge in oil prices, Freeport is selling a portion of the oil and gas business. What ever happened to buying low and selling high?
Getting out of the oil business is probably the right decision for Freeport, but unfortunately the shareholders paid the price for the management’s misguided adventure into the oil patch.
Jeremy Jones, CFA
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