Warren Buffett just added millions more shares of this stock to his portfolio. And it has an 84% return since 2020. Should you invest?

“If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes,” Warren Buffett once wrote wrote in a letter to shareholders.

Great performance and stocks may seem like contradictory terminology this year. But despite double-digit losses from major indexes last year, and sub-par gains so far in 2023, there are still some individual stocks that have generated sizable gains over the period. When it comes to price performance, one has even managed some impressive growth over the past two years. Pros, however, say most investors should consider other alternatives. 

Houston, Texas-based hydrocarbon exploration company Occidental Petroleum Corp., or OXY, has notched an 84% overall price performance increase since March 2020, Morningstar data show. And although the stock has recorded a 1.3% loss so far in 2023, that hasn’t stopped famed investor Warren Buffett from continuing to add shares of it to his portfolio. Buffett’s Berkshire Hathaway purchased 5.8 million shares of the oil company in three separate trades on Friday, Monday and Tuesday for prices ranging from $59.85 to $61.90, according to a recent SEC filing. Today his Omaha, Nebraska-based firm owns 200.2 million shares of Occidental, worth an estimated $12.4 billion as of Wednesday’s close price of $62.15.

So why have petroleum stocks like this one outperformed the market since 2020? For one, crude oil prices for much of the first half of the 2022 have hovered around $100 per barrel. Although they have recently started to decline — to roughly $77 per barrel as of March 9, according to Bloomberg data — natural gas has also seen a general uptick since 2020, peaking at $8.81 per million British thermal units, or BTUs, last August, to now $2.38 in February 2023, government data show. Although that is indeed a noteworthy decline, the sector is still up from $1.91 in February 2020.

Ready to cash in? Pros say proceed with caution

If you’re hoping to steal a page from Buffett’s playbook and cash in on these crazy-high gains, NerdWallet investing spokesperson Andy Rosen has a warning. “A stock with a big year-to-date gain would have made you money if you invested at the start of the year, but that doesn’t mean it’s going to pay off if you invest now,” he said, adding that selecting individual stocks comes with plenty of risks. “You’ll have to make your own analysis about whether the good times are going to continue for the asset you’re considering.”

Eventually the ride will come to an end, a timing game that may just be too much of a risk for most retail investors, said Peter Krull, CEO, Earth Equity Advisors. “While there are many examples of people who have made bets on a single stock and benefitted handsomely, there are just as many who have lost,” Krull said. “The most prudent investment principle is to own a diversified portfolio.”

Or you can take another page from Warren Buffett’s playbook, this one targeted to most investors. “In my view, for most people, the best thing to do is owning the S&P 500 index fund,” Buffett said a few years back. And he is also a believer — at least for most investors — in thinking long term. “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes,” he has said. 

But if you do want to pick individual stocks, here is some of his advice: “I don’t think most people are in a position to pick single stocks,” Buffett said during a 2020 Berkshire Hathaway annual shareholders meeting. “A few [are], maybe, but on balance, I think people are much better off buying a cross-section of America and just forgetting about it.”

This story was originally published in October 2022 and has been updated.

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