Warren Buffett annual letter Berkshire Hathaway: stock buybacks

Warren Buffett defended stock buybacks in Berkshire Hathaway‘s annual letter, pushing back on those railing against the practice he believes to be helpful to all shareholders.

“When you’re told that each one repurchases are harmful to shareholders or to the country, or particularly helpful to CEOs, you might be listening to either an economic illiterate or a silver-tongued demagogue (characters that usually are not mutually exclusive),” the 92-year-old investor said within the much-anticipated letter released Saturday.

The “Oracle of Omaha” initiated a buyback program in 2011 and relied on repurchases lately during a competitive deal-making environment and an expensive stock market. The conglomerate spent a record $27 billion in buybacks in 2021 as Buffett found few opportunities externally.

Repurchase activities slowed down this 12 months to about $8 billion because the billionaire investor went on a buying spree with stocks selling off. Berkshire also took over insurance company Alleghany for $11.6 billion, Buffett’s biggest deal since 2016. 

Stock buybacks have drawn criticism from politicians who imagine Corporate America should use their money in other ways to spice up growth in the long run, corresponding to worker advantages and capital expenditures. Many say buybacks often provide an incremental boost to earnings per share growth, and when corporations stop doing that, accomplishing that goal becomes tougher.

Buffett believes buybacks are helpful to shareholders as they supply a lift to per-share intrinsic value.

“The maths is not complicated: When the share count goes down, your interest in our many businesses goes up. Every small bit helps if repurchases are made at value-accretive prices,” Buffett said. “Gains from value-accretive repurchases, it ought to be emphasized, profit all owners – in every respect.”

The legendary investor highlighted Apple and American Express, two of his biggest equity holdings which have similar strategies. Buffett up to now has said he’s a fan of CEO Tim Cook’s stock repurchase program, and the way it gives the conglomerate increased ownership of every dollar of the iPhone maker’s earnings without the investor having to lift a finger.

“At Berkshire, we directly increased your interest in our unique collection of companies by repurchasing 1.2% of the corporate’s outstanding shares,” Buffett said.

The Inflation Reduction Act provision imposing a 1% exercise tax on buybacks became effective this 12 months. 

‘American tailwind’

Buffett’s widely read shareholder letter is released with Berkshire’s annual report and frequently sets the tone before the conglomerate’s big annual meeting in May in Omaha, Nebraska, nicknamed “Woodstock for Capitalists.”

The letter touched on a couple of other themes, including praise for his longtime partner, Charlie Munger, 99, in addition to how Berkshire was glad to pay a considerable amount of taxes due to the profit it’s received through the years from the “American tailwind.”

“I actually have been investing for 80 years – greater than one-third of our country’s lifetime,” Buffett said. “I actually have yet to see a time when it made sense to make a long-term bet against America. And I doubt very much that any reader of this letter could have a distinct experience in the long run.”

The much admired investor said Berkshire will at all times hold a boatload of money and U.S. Treasury bills together with a big selection of companies for the long run. Its money pile stood at nearly $130 billion at the top of 2022.

Buffett also revealed that Berkshire’s future CEOs could have a big a part of their net value within the conglomerate’s shares, bought with their very own money. Greg Abel, Buffett’s likely successor and Berkshire’s vice chairman of non-insurance businesses, spent greater than $68 million on Berkshire’s shares last 12 months.

“At Berkshire, there might be no finish line,” Buffett said.