In their latest episode of the VALUE: After Hours Podcast, Taylor, Brewster, and Carlisle discuss Buffett: When Buybacks Are A Better Alternative Than Doing Something Stupid. Here’s an excerpt from the episode:
Bill: I don’t disagree, but moving to a more interesting conversation, I think, why do you think Buffett is so okay with Apple repurchasing shares here, but he’s not willing to commit Berkshire’s capital?
Tobias: Do you think he’s okay with it or do you think he’s in that sort of?
Bill: He cheers Tim Cook on. Talks about how Berkshire’s percentage has grown and we didn’t even have to lay out a dollar. I fucking hate this part of the letter. Every time I read it, I’m like, “This is so intellectually dishonest.”
Tobias: He tries to be a supporter?
Jake: Well, he’s– [crosstalk]
Bill: He’s always done it. Yeah. Even when Coke was doing it back in the days like, “Yeah, we’re happy to own more. Keep going. Who cares if the P/E is 45?”
Jake: He knows the base rates of what CEOs typical cap allocation looks like.
Tobias: Better than buying another company. Is that what you say?
Jake: I don’t know them buying a movie franchise like Coke did or buying magic beans or yeah, M&A that’s ill conceived. Just get it out of their hands, I think is often probably what he’s imagining.
Bill: So, you think, he thinks exceptional manager, exceptional business.
Jake: Where else are they going to put the money, for Apple?
Bill: You could dividend it out. [crosstalk]
Jake: Metaverse, is that where he wants it?
Bill: Where you could actually pay cash.
Jake: A car?
Bill: That’s possible.
Jake: Apple car?
Bill: No. Well, you can pay cash.
Jake: On a 2% margin car?
Bill: Again, I think you could pay cash, money dividends.
Jake: Yeah. Well, you could make a very strong argument that at Apple’s price today that a dividend is probably the smarter play.
Bill: If I was him, I’d be on the phone. I’d be like, “Dude, just issue special dividends.” I’ll make the decision to buy the stock or not.
Tobias: Can you pay up capital and have it get a different treatment to a dividend? Can you engineer something like that?
Bill: Well, corporations have different tax rates and they receive dividends. The shareholder base doesn’t. But I don’t know. Do half. I don’t know. It’s weird. It’s weird to me that he says that and he says like, “We didn’t even have to put any capital out.” Yeah, but there’s an opportunity cost to that capital.
Tobias: Maybe he was just reusing last year’s letter and he was like, “Oh, I don’t feel writing this again. That’s close enough and still trading.”
Jake: I know it’s 35 times earnings, but we’ll just run this SPAC. [laughs]
Bill: Yeah. I don’t know. It’s interesting. If you listen to the questions when Coke was crazy in the 90s, he had no problem with them buying in shares. Maybe it is because he just doesn’t want him something stupid. That would make some sense.
Jake: He’s seen a lot of stupid cap allocation decisions in his 70 years of doing this.
Tobias: Yeah. Probably the least stupid is least objectionable capital allocation processes. Probably, he’s just like, “At least it’s not a big acquisition.” At least he’s not buying Tesla or Nvidia.
Jake: Yeah. [laughs]
Bill: It’s weird for him to cheer it on. I don’t know.
Bill: I just wanted to continue.
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