Annual letter from Warren Buffett Berkshire Hathaway: share buybacks

An Andy Warhol-like print of Berkshire Hathaway CEO Warren Buffett hangs outside a clothing stall at Berkshire Hathaway Inc’s first in-person annual meeting since 2019 in Omaha, Nebraska, USA, April 30, 2022.

scott morgan | Reuters

Warren Buffett has defended stock buybacks in Berkshire Hathaway’s annual letter, pushing back against those who oppose the practice he believes is beneficial to all shareholders.

“When you are told that all takeovers are harmful to shareholders or the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue (characters who are not mutually exclusive) “wrote the 92-year-old investor said in the highly anticipated letter published on Saturday.

The “Oracle of Omaha” launched a buyback program in 2011 and has relied on buybacks in recent years in a competitive environment and an expensive stock market. The conglomerate spent a record $27 billion on takeovers in 2021 as Buffett found few outside opportunities.

Buyback activity has slowed this year to around $8 billion as the billionaire investor went on a buying spree with shares sold. Berkshire also took over insurance company Alleghany for $11.6 billion, Buffett’s biggest deal since 2016.

The stock buybacks have drawn criticism from politicians who believe US companies should use their money in other ways to boost long-term growth, such as employee benefits and capital spending. Many say buybacks often provide an extra boost to earnings per share growth, and when companies stop doing so, achieving that goal becomes more difficult.

Buffett believes buybacks are good for shareholders because they increase intrinsic value per share.

“The math is not complicated: as the number of shares decreases, your interest in our many businesses increases. Every little bit counts if buybacks are made at accretive prices,” Buffett said. “The gains from accretive buyouts, it should be emphasized, benefit all owners – in all respects.”

The legendary investor highlighted Apple and American Express, two of his biggest equity holdings that have similar strategies. In the past, Buffett has said he’s been a fan of CEO Tim Cook’s stock buyback program, and how it gives the conglomerate increased ownership of every dollar of the iPhone maker’s profits without the investor n have to lift a finger.

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

The provision of the Reducing Inflation Act imposing a 1% exercise tax on redemptions came into force this year.

“American Tailwind”

Buffett’s widely read letter to shareholders is published with Berkshire’s annual report and usually sets the tone ahead of the conglomerate’s big annual meeting in May in Omaha, Nebraska, dubbed “Woodstock for Capitalists.”

The letter touched on a few other topics, including praise for longtime partner Charlie Munger, 99, as well as how Berkshire was happy to pay a large amount of tax due to the benefits he received over the years. years of the “American tailwind”. “

“I’ve been investing for 80 years — more than a third of the life of our country,” 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 any reader of this letter will have a different experience in the future.”

The widely admired investor said Berkshire will still hold a boatload of cash and US Treasuries as well as a wide range of businesses for the future. Its cash position stood at nearly $130 billion at the end of 2022.

Buffett also revealed that future Berkshire CEOs will have a significant portion of their net worth in shares of the conglomerate, purchased with their own money. Greg Abel, Buffett’s likely successor and Berkshire’s vice president for non-insurance businesses, spent more than $68 million on Berkshire stock last year.

“In Berkshire, there will be no finish line,” Buffett said.

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