Repurchasing a Company’s Outstanding Shares

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“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).”  ~ Warren Buffet, Berkshire Hathaway Inc.’s 2022 Annual Report

A very minor gain in per-share intrinsic value took place in 2022 through Berkshire Hathaway’s share repurchases.

Regarding share repurchases or buybacks, when the share count goes down, shareholder’s interest in Berkshire Hathaway’s many businesses goes up. Every small bit helps if repurchases are made at value-accretive prices, writes Warren E. Buffett, Chairman and CEO, Berkshire Hathaway.

On the other hand, when a company overpays for repurchases, the continuing shareholders lose. At such times, gains flow only to the selling shareholders and to the friendly, but expensive, investment banker who recommended the foolish purchases, states Buffett in the 2022 Annual Letter to shareholders.

Gains from value-accretive repurchases, it should be emphasized, 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 favored over the continuing passive owners? Has the public been hurt?

Yet, Washington politicians either knowingly miss state the truth or whom are “economic Illiterate”, imply otherwise

References:

  1. Warren E. Buffett, Berkshire Hathaway Inc. 2022 Annual Report, February 25, 2023, pg. 6. https://berkshirehathaway.com/2022ar/2022ar.pdf
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