Warren Buffett: Beware The Economic Illiterate And Silver-Tongued Demagogues

Johnny HopkinsWarren Buffett1 Comment

In his most recent Berkshire Hathaway Annual Shareholder Letter, Warren Buffett delivered a warning to investors to beware of the economic illiterate and silver-tongued demagogues. Here’s an excerpt from the letter:

A very minor gain in per-share intrinsic value took place in 2022 through Berkshire share repurchases as well as similar moves at Apple and American Express, both significant investees of ours. At Berkshire, we directly increased your interest in our unique collection of businesses by repurchasing 1.2% of the company’s outstanding shares. At Apple and Amex, repurchases increased Berkshire’s ownership a bit without any cost to us.

The math isn’t complicated: When the share count goes down, your interest in our many businesses goes up. Every small bit helps if repurchases are made at value-accretive prices. Just as surely, 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.

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?

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).

You can read the entire letter here:

2023 Berkshire Hathaway Annual Letter

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One Comment on “Warren Buffett: Beware The Economic Illiterate And Silver-Tongued Demagogues”

  1. all repurchases are not harmful, but the percentage of repurchases that are harmful are high
    because insiders tend to buy up stock that is over-valued in order to max out the profit
    from option exercises. when the stock is cheap they typically tend to suspend repurchases
    ‘in the interest of conserving capital.’ the net effect is to transfer wealth from general shareholders into the pockets of insiders. this is a valid concern of politicians. buffett is right that when it is done with decent intent repurchases benefit all shareholders equally.
    the problem is that repurchasing is so often done without fair intent. when combined
    with ‘adjusted earnnings’ used to whitewash the cost of options compensation,
    the abuse of repurchasing makes for a growing list of uninvestable companies.

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