Warren Buffett, the chairman and CEO of Berkshire Hathaway (BRK.B) (BRK.A), has often used parables and anecdotes to illustrate deeper truths about markets and human behavior. One of the more memorable is the story passed down from his mentor Benjamin Graham: “Oil discovered in hell.”
The phrase comes from an old story Graham told to explain why investment professionals often act in ways that defy rational analysis. In the tale, an oil prospector arrives at the gates of heaven, only to be told by St. Peter that the compound reserved for oil men is already full. The prospector asks for permission to say just four words to those inside. Granted the chance, he shouts, “Oil discovered in hell.” At once, the entire group of oil men rushes off, leaving heaven’s gates open. When St. Peter offers the prospector a place inside, the prospector hesitates, saying he may as well join the others — after all, there might be some truth to the rumor.
Buffett’s use of the story was more than comic relief. It reflected a key theme in his investment philosophy: markets are not always driven by careful analysis but often by crowd psychology. The oil men abandoning heaven for a rumor of riches captures the way investors can be swayed by fear of missing out or by the belief that others know something they do not. The irony of the tale lies in its ending — the prospector himself succumbs to the same irrational pull he exploited, demonstrating how even those aware of the folly are not immune to it.
For Buffett, retelling this parable made sense in the broader context of explaining institutional behavior. Despite employing teams of highly trained professionals, large investors often chase trends, follow the herd, or act on speculation rather than fundamentals. In Buffett’s words, stocks heavily owned by institutions are frequently among the most inappropriately valued. The oil-in-hell story vividly captures why: when everyone assumes there might be hidden opportunity elsewhere, reason takes a back seat to speculation.
The authority of Buffett in citing such lessons comes from both his mentorship under Graham and his decades of real-world results. Where many investors faltered by chasing bubbles or fleeing during downturns, Buffett consistently emphasized independent thinking, intrinsic value, and patience. By invoking Graham’s tale, he underscored the importance of resisting the stampede.
The story remains timeless in its application. In today’s markets, whether in energy, technology, or digital assets, waves of enthusiasm often drive valuations far beyond fundamentals. Just as the oil men in Graham’s parable abandoned certainty for rumor, modern investors can be tempted by narratives of rapid growth, speculative booms, or untested innovations. Buffett’s retelling of “oil discovered in hell” serves as a reminder that following the crowd may lead investors away from solid ground.
Though humorous, the story reflects one of the oldest challenges in finance: balancing the human impulse to chase opportunity with the discipline to stay grounded in fact. For Buffett, as for Graham, the moral was clear — investors who allow herd mentality to dictate decisions risk leaving heaven in pursuit of illusions.
On the date of publication, Caleb Naysmith did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com