2020: Is there a risk of permanent loss of capital in Berkshire's oil investments?”

BECKY QUICK: Let me follow up with this one, and this one comes in from Mohnish Bahl, who says, “Is there a risk of permanent loss of capital in the oil equity investments?”

WARREN BUFFETT: Well, there certainly is, you know — there’s no question if — if oil stays at these prices, there’s going to be a lot of money — a whole lot of money — in middle extended bank loans, and it’ll affect the banking industry, to some degree, not — it doesn’t destroy them or anything, but there’s a lot of money that’s been invested that was not invested based on a $17 or $20 or $25 price for WTI, West Texas Intermediate oil, and —

But you can do the same thing in copper. You can do the same thing in some of the things we manufacture — I mean it — but with commodities, it’s particularly dramatic.

And, you know, farmers have been getting lousy prices, but to some extent, the government subsidized them. I’m all for it, actually.

But if you’re an oil producer, you take your chances on future prices, unless you want to sell a lot of futures forward. OXY, actually, did sell 300,000 barrels a day of puts, in effect, that — or they bought puts — and sold calls, in effect, to match it. And they were protected on $10 — for a layer of $10 a barrel on 300,000 barrels a day.

But you’re really buying — when you buy oil, you’re betting on oil prices over time, and over a long time. And oil prices — there’s risk. And the risk is being realized by oil producers as we speak.

There will be— if these prices prevail — there will be a lot of bad loans in energy loans and or— bad debts in energy loans. And if there are bad debts in energy loans, you can imagine what happens to the equity holders. So yes, there’s a risk.