Warren Buffett defends buybacks to Berkshire Hathaway shareholders

Warren Buffett has offered a full-throated defence of share buybacks in his annual letter to Berkshire Hathaway shareholders, saying stock purchases by Berkshire and the dozens of publicly traded companies it owns are a boon to investors.

The comments on Saturday from the 92-year-old investor were made in the shortest annual letter he has published in decades.

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

“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),” Buffett wrote.

The Berkshire chief executive said that when repurchases were “made at value-accretive 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 shares in those businesses, buybacks completed by AMEX and Coca-Cola have boosted the sprawling conglomerate’s ownership in the two companies and made Berkshire their largest investor.

Berkshire has ramped up purchases of its own stock in recent years, particularly at times when Buffett was finding few appealing investment alternatives. The company spent $7.9bn last year buying up its own shares.

Repurchases this year will be taxed for the first time, with officials projecting stock buybacks could generate $74bn in revenues for the US Treasury over the next decade, a figure that could rise further if US policymakers increase the 1 per cent tax rate.

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

“We owe the country no less: America’s dynamism has made a huge contribution to whatever success Berkshire has achieved — a contribution Berkshire will always need,” he wrote. “We count on the American Tailwind and, though it has been becalmed from time to time, its propelling force has always returned.”

Buffett offered few nuggets of wisdom in an annual letter that is normally poured over by the investing public for his thoughts on investment and the world.

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

The letter was a brief 10 pages, about half the length of his letters since 2000. His letters have got shorter as he has aged; however the hundreds of pages he has written to shareholders since the 1970s mean that investors only have to thumb through his archives to find his views.

Berkshire reported an $18.2bn profit in the fourth quarter of 2022, down more than 50 per cent from the prior year. For the full year, the company swung to a net loss of $22.8bn, from a profit of $89.8bn in 2021.

However those figures are dramatically altered by the swings in prices of Berkshire’s $309bn stock portfolio, which gyrated last year as financial markets were swept by volatility. Accounting rules require Berkshire to report those unrealised gains and losses each quarter in its results.

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

The company’s underlying businesses, which includes the BNSF railroad and Dairy Queen ice cream purveyor, generated a $6.7bn profit in the final three months of the year, down 8 per cent from the prior year.

Buffett said the full-year operating earnings of $30.8bn were a record high for Berkshire.

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