Warren Buffett defends buybacks to Berkshire Hathaway shareholders

Warren Buffett, in his annual letter to Berkshire Hathaway shareholders, has issued a strong defense against share buybacks, arguing that the stock purchases by Berkshire and the dozens of publicly traded companies it owns are a boon to investors.

The 92-year-old investor commented Saturday in the shortest annual letter he’s published in decades.

They come weeks after a new tax on share buybacks went into effect in the US. The tax was one of the few revenue-raising measures that found unanimous support among Senate Democrats when they passed the Inflation Reduction Act, President Joe Biden’s sweeping climate and tax bill.

“If you are told that all buybacks are detrimental to shareholders or the country, or particularly beneficial to CEOs, you are listening to an economically illiterate or a silver-tongued demagogue (characters that are not mutually exclusive),” Buffett wrote.

Berkshire’s CEO said that when buybacks were made “at value-enhancing prices,” it benefited all shareholders, pointing to investments his company made in American Express and Coca-Cola in the 1990s.

While Berkshire has stopped buying new stock in those companies, buybacks by AMEX and Coca-Cola have increased the sprawling conglomerate’s ownership in the two companies and made Berkshire their largest investor.

Berkshire has ramped up its share purchases in recent years, especially at a time when Buffett found few attractive investment alternatives. The company bought back its own shares for $7.9 billion last year.

Buybacks will be taxed for the first time this year, with officials predicting that stock buybacks could generate $74 billion in revenue for the U.S. Treasury over the next decade, a figure that could rise further if U.S. policymakers raise the 1 percent tax rate. to increase.

Buffett told shareholders on Saturday that he expected Berkshire to pay much more in taxes in coming years as the sprawling conglomerate grows, calculating that the company had paid $32 billion in taxes over the past decade.

“We owe the country no less: America’s dynamism has contributed immensely to the success Berkshire has achieved — a contribution Berkshire will always need,” he wrote. “We count on the American Tailwind and although it has been calm from time to time, its propulsion has always returned.”

Buffett offered some nuggets of wisdom in an annual letter normally doused by the investing public for his thoughts on investing and the world.

This year’s entry almost contained a page of quotes from his longtime partner Charlie Munger.

The letter was a short 10 pages, about half the length of his letters since 2000. His letters have gotten shorter as he has aged; however, the hundreds of pages he’s written to shareholders since the 1970s mean investors need only flip through his archives to find his point of view.

Column chart of the number of pages showing it falls short: length of Warren Buffett's annual letters

Berkshire reported earnings of $18.2 billion in the fourth quarter of 2022, down more than 50 percent from the previous year. For the full year, the company slumped to a net loss of $22.8 billion from a profit of $89.8 billion in 2021.

Those numbers, however, are being dramatically altered by the price swings of Berkshire’s $309 billion stock portfolio, which spun last year as financial markets were engulfed in volatility. Accounting rules require Berkshire to report those unrealized gains and losses in its results each quarter.

Buffett said this measurement was “100 percent misleading when viewed quarterly or even annually.”

The company’s underlying businesses, which include BNSF railroad and ice cream supplier Dairy Queen, generated profits of $6.7 billion in the last three months of the year, down 8 percent from the prior year.

Buffett said full-year operating income of $30.8 billion was a record for Berkshire.






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