In his 1997 Berskshire Hathaway Chairman’s Letter, Warren Buffett highlights the advantages of stock repurchase programs, particularly when prices are low, as they increase ownership stakes more effectively.
He notes that Berkshire Hathaway benefits significantly from long-term shareholders, with 97% retaining their shares year-over-year. Market declines, contrary to popular belief, present opportunities for investors to deploy funds advantageously.
Buffett highlights the mutual nature of markets, where every seller has a buyer, turning losses for disinvestors into gains for investors.
Here’s an excerpt from the letter:
Furthermore, through Berkshire you own major positions in companies that consistently repurchase their shares.
The benefits that these programs supply us grow as prices fall: When stock prices are low, the funds that an investee spends on repurchases increase our ownership of that company by a greater amount than is the case when prices are higher.
For example, the repurchases that Coca-Cola, The Washington Post and Wells Fargo made in past years at very low prices benefitted Berkshire far more than do today’s repurchases, made at loftier prices.
At the end of every year, about 97% of Berkshire’s shares are held by the same investors who owned them at the start of the year. That makes them savers. They should therefore rejoice when markets decline and allow both us and our investees to deploy funds more advantageously.
So smile when you read a headline that says “Investors lose as market falls.” Edit it in your mind to “Disinvestors lose as market falls — but investors gain.”
Though writers often forget this truism, there is a buyer for every seller and what hurts one necessarily helps the other. (As they say in golf matches: “Every putt makes someone happy.”)
We gained enormously from the low prices placed on many equities and businesses in the 1970s and 1980s. Markets that then were hostile to investment transients were friendly to those taking up permanent residence.
In recent years, the actions we took in those decades have been validated, but we have found few new opportunities. In its role as a corporate “saver,” Berkshire continually looks for ways to sensibly deploy capital, but it may be some time before we find opportunities that get us truly excited.
You can find a copy of the letter here:
1997 Berskshire Hathaway Chairman’s Letter
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