Buffett Favors Share Buybacks

Warren Buffett's annual letter is highly anticipated by Berkshire Hathaway's shareholders.

Berkshire Hathaway's  (BRK.A) - Get Free Report Warren Buffett makes no attempt to hide his support for share buybacks.

The 92-year-old “Oracle of Omaha” dismissed critics of stock buybacks, stating they are "either an economic illiterate or a silver-tongued demagogue” or both.

The CEO of Berkshire Hathaway said investors reap the rewards of buybacks if companies purchase stocks back at the right prices in his annual letter that is always released on Saturday.

The billionaire's reply was in response to critics such as Senators Bernie Sanders and Elizabeth Warren who have long spoken out against some of Wall Street's strategies.

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Buybacks received a 1% tax this year from the federal government when the total amount reached $1 trillion in 2022.

“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),” wrote Buffett, who is also a Democrat.

The billionaire, who is the fifth richest man in the world, said the conglomerate doubled the returns of the S&P 500 over the last 58 years due to “about a dozen truly good decisions – that would be about one every five years.”

His letter has always been highly anticipated by Berkshire Hathaway's shareholders and other investors.

Buffett is not afraid to criticize Wall Street and readily shows his disdain on its practice of companies needing to "beat expectations" each quarter.

"Beating 'expectations' is heralded as a managerial triumph," he wrote. "That activity is disgusting. It requires no talent to manipulate numbers: Only a deep desire to deceive is required."

Berkshire's strategy for the past several decades is to allocate money into companies they either own outright or ones that are public by acquiring shares over time.

"First, we invest in businesses that we control, usually buying 100% of each...," Buffett wrote. "In our second category of ownership, we buy publicly-traded stocks through which we passively own pieces of businesses."

One reason Buffett is a fan of the public markets is because "it becomes easy to buy pieces of wonderful businesses at wonderful prices."

But Buffett warned investors that the public markets can easily run afoul.

"It’s crucial to understand that stocks often trade at truly foolish prices, both high and low," the letter said.

A long-time investor of the insurance business, Buffett touts their ability to generate healthy profit margins.

"Aided by Alleghany, our insurance float increased during 2022 from $147B to $164B...these funds have a decent chance of being cost-free over time," he wrote. Since...1967, Berkshire’s float has increased 8,000-fold"

Having free cash flow is always beneficial, wrote Buffett, whose net worth is $106 billion as of Feb. 24, according to the Bloomberg Billionaires Index.

"...Berkshire will always hold a boatload of cash and U.S. Treasury bills along with a wide array of businesses," the letter said. "We will also avoid behavior that could result in any uncomfortable cash needs at inconvenient times....At Berkshire, there will be no finish line."

Berkshire Hathaway Vice Chairman Charlie Munger’s advice is always worthwhile to investors as well, as he stated, "A great company keeps working after you are not; a mediocre company won’t do that."

Buffett's letter was shorter this year and only eight pages, which included one page in tribute to Munger, his business partner.