Warren Buffett Defends Share Buybacks In Annual Letter To Shareholders, Calls Critics 'Economic Illiterate'

Berkshire Hathaway, Inc. (NYSE: BRK-A) (NYSE: BRK-B) CEO and chairman Warren Buffett slammed people who oppose share repurchases in his annual letter to shareholders released Saturday.

What Happened: “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,” Buffett said.

The statement came as the billionaire and philanthropist discussed Berkshire’s 2022 financial results. He noted that a very small gain per-share intrinsic value took place in 2022 through Berkshire’s buybacks during the year and also stock repurchases by its investment holdings Apple, Inc. AAPL and American Express Company AXP.

Berkshire said in its earnings report that it bought back $2.6 billion worth of shares in the fourth quarter.

By buying back 1.2% of Berkshire’s shares in 2022, the company directly increased the interest of shareholders in the company, while stock buybacks by Apple and American Express increased Berkshire’s ownership interests in the two companies without any associated cost, he added.

See also: What Is A Stock Buyback

Value-Accretive Vs. Value-Destructive Repurchases: The billionaire, however, cautioned that repurchases should be made at value-accretive prices. However, if a company overpays for repurchases, the continuing shareholders lose, he noted. “At such times, gains flow only to the selling shareholders and to the friendly, but expensive, investment banker, who recommended the foolish purchases,” he added.

Gains from value-accretive repurchases benefit all owners, in every respect, Buffett said. He also mentioned a scenario, where there are three fully-informed shareholders of a local auto dealership, with one of them managing the business.

If one of the passive owners wishes to sell his stake back to the company at a price attractive to the two continuing shareholders, the transaction wouldn’t harm anyone, Buffett said.

Incidentally, President Joe Biden has called for quadrupling the surcharge on stock buybacks from the current 1%. The president's motive is to encourage big corporations, especially the oil giants, to plow back profits into increasing production and not spend them on buybacks. 

Now Read: Warren Buffett Says Berkshire Had A Good 2022 Despite Q4 Earnings Falling On Investment Losses, Adverse Currency Impact

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