Exxon Mobil Fight Pits Buffett Against Chanos

ExxonMobil Oil Sands

Inexperienced and experienced investors alike can learn from what the big guys are doing. Some investors even like to follow the bets of their heroes before doing their own research. Problems arise when two respected investors go head to head at a widely followed company. That exact situation appears to be lining up at Exxon Mobil Corporation (NYSE:XOM).

Exxon Mobil Corporation (NYSE:XOM) shares flew on Friday’s market after it was revealed that Warren Buffett had bought into the oil company. Investors stand up and listen when Buffett says anything, so his bet on Exxon Mobil Corporation (NYSE:XOM) was taken as an anointment. Jim Chanos, another investor that investors look to for guidance, has different ideas about Exxon.

Exxon Mobil short case

At the Reuters Global Investment Outlook Summit in New York, Mr. Chanos revealed that he is pessimistic about the prospects of oil and gas companies. Chanos said that Exxon Mobil Corporation (NYSE:XOM) in particular looked like a value trap. The investor highlighted the company’s declining cash flows and returns.

Chanos said that the oil business was in the midst of a remarkable transformation. The most important part of this transformation is the drop in return on investment. Oil is getting more and more expensive to get to, according to Chanos, and that’s bad for Exxon Mobil Corporation (NYSE:XOM) investors.

If he’s right that means the industry is particularly bad for Warren Buffett. The legendary value investor bought shares worth around $3.45 billion in Exxon Mobil (NYSE:XOM). Jim Chanos is famous for his shorts. His most famous investment was a bet against Enron in the early years of the twenty-first century.

Exxon Mobil and Buffett

Chanos did not reveal an active short of Exxon Mobil Corporation (NYSE:XOM), and if he has one he may be rethinking it in the face of Warren Buffett’s long bet. Buffett is famous for picking the right companies to invest in at the right time, but he does make mistakes. Buffett did not reveal the extent of the logic behind his massive bet on Exxon Mobil, but it is very likely he has good reasons.

Investors will have to choose which horse to back for themselves. Exxon Mobil Corporation (NYSE:XOM) shares didn’t move much in the face of Chanos’ comments today, though they were trading down a fraction. The market reacted pretty strongly when Buffet revealed his involvement in the company.

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Paul Shea
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