Warren Buffett targeted the critics of repurchase or share buyback, calling them economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive). On February 25, Berkshire Hathaway published its annual report and the letter from Warren Buffet to the investors. Apart from the investment strategies and financial performance, the billionaire gave lessons to investors, explaining them with examples. Many analysts believe that Warren Buffett’s comment on share repurchasing is targeted at US President Joe Biden. Recently, Biden signalled at increasing the federal tax on stock buyback from 1% to 4%.
Berkshire’s ownership in Apple, Amex increased without any cost due to repurchases
“A very minor gain in per-share intrinsic value took place in 2022 through Berkshire share repurchases as well as similar moves at Apple and American Express, both significant investees of ours. At Berkshire, we directly increased your interest in our unique collection of businesses by repurchasing 1.2% of the company’s outstanding shares. At Apple and Amex, repurchases increased Berkshire’s ownership a bit without any cost to us” said Warren Buffett.
Does share repurchase harm anyone?
“Gains from value-accretive repurchases, it should be emphasised, benefit all owners – in every respect. Imagine, if you will, three fully-informed shareholders of a local auto dealership, one of whom manages the business. Imagine, further, that one of the passive owners wishes to sell his interest back to the company at a price attractive to the two continuing shareholders. When completed, has this transaction harmed anyone? Is the manager somehow favoured over the continuing passive owners? Has the public been hurt?” Billionaire said.
Economic illiterate or silver-tongued demagogue considers stock repurchase harmful
“When you are told that all repurchases are harmful to shareholders or to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive),” Buffett said.