An Andy Warhol-esque print of Warren Buffett, CEO of Berkshire Hathaway, hangs outside a clothing stand at Berkshire Hathaway Inc’s first in-person annual meeting since 2019 in Omaha, Nebraska, USA on April 30, 2022.
Scott Morgan| Reuters
Warren Buffett defended stock buybacks Berkshire Hathaway‘s annual letter, pushing back those who oppose the practice he says is beneficial to all shareholders.
“If you are told that all buybacks are detrimental to shareholders or the country, or especially beneficial to CEOs, you are listening to an economically illiterate or a silver-tongued demagogue (characters that are not mutually exclusive),” said the 92-year-old investor in the highly anticipated letter released Saturday.
The “Oracle of Omaha” initiated a buyback program in 2011 and has relied on buybacks in recent years in a competitive deal-making environment and an expensive stock market. The conglomerate spent a record $27 billion on buybacks in 2021 as Buffett saw few opportunities externally.
Buyback activity slowed to about $8 billion this year as the billionaire investor went on a bargain hunt and sold shares. Berkshire also acquired insurance company Alleghany for $11.6 billion, Buffett’s largest deal since 2016.
The stock buybacks have drawn criticism from politicians who believe Corporate America should use their money in other ways to drive long-term growth, such as employee benefits and capital expenditures. Many say that buybacks often provide an incremental boost to earnings per share growth, and when companies stop doing that, meeting that goal becomes more challenging.
Buffett believes that buybacks are beneficial to shareholders because they increase the net asset value per share.
“The math isn’t complicated: when the number of stocks falls, your interest in our many companies increases. Every little bit helps when buybacks are made at value-boosting prices,” Buffett said. “It must be emphasized that profits from value-enhancing buybacks benefit all owners – in every way.”
The legendary investor in the spotlight Apple And American Express, two of his largest stock holdings with similar strategies. Buffett has said in the past that he’s a fan of CEO Tim Cook’s stock buyback program, and how it gives the conglomerate more ownership for every dollar of the iPhone maker’s revenue without the investor having to lift a finger.
“At Berkshire, we’ve directly increased your interest in our unique collection of companies by buying back 1.2% of the company’s outstanding shares,” Buffett said.
The provision of the Inflation Reduction Act, which imposes a 1% exercise tax on redemptions, took effect this year.
Buffett’s widely read shareholder letter is published along with Berkshire’s annual report and usually sets the tone for the conglomerate’s big annual meeting in May in Omaha, Nebraska, nicknamed “Woodstock for Capitalists.”
The letter touched on a few other themes, including praise for his longtime partner, Charlie Munger, 99, and how Berkshire was happy to pay a large amount in taxes because of the benefit it has received over the years from the “American tailwind”. “
“I’ve been investing for 80 years — more than a third of our country’s lifespan,” Buffett said. “I have yet to see a time when it made sense to make a long-term bet against America. And I highly doubt that any reader of this letter will have a different experience in the future.”
The much-admired investor said Berkshire will always have a boatload of cash and U.S. Treasury bills going forward, along with a wide variety of companies. The cash pile reached nearly $130 billion by the end of 2022.
Buffett also revealed that Berkshire’s future CEOs will have a significant portion of their net worth in the conglomerate’s stock, purchased with their own money. Greg Abel, Buffett’s likely successor and Berkshire’s vice chairman of non-insurance companies, spent more than $68 million on Berkshire’s stock last year.
“In Berkshire, there will be no finish line,” Buffett said.