In his 2022 Berkshire Hathaway Annual Letter, Warren Buffett once again demonstrates his unparalleled ability to distill complex financial concepts into simple, relatable truths.
His discussion on share repurchases is a masterclass in clarity and logic, offering a timely reminder of why thoughtful capital allocation matters.
As Buffett writes, “The math isn’t complicated: When the share count goes down, your interest in our many businesses goes up.” This statement cuts through the noise surrounding share buybacks, a topic often misunderstood or misrepresented in public discourse.
Buffett’s perspective is grounded in a fundamental principle: repurchases benefit shareholders when executed at “value-accretive prices.”
He warns, however, that overpaying for repurchases harms continuing shareholders, as “gains flow only to the selling shareholders and to the friendly, but expensive, investment banker who recommended the foolish purchases.”
This distinction is critical. It’s not repurchases themselves that are inherently good or bad—it’s the price at which they are conducted that determines their impact.
Critics of share buybacks often paint them as a tool for enriching CEOs or harming the broader economy. Buffett dismisses such claims with characteristic bluntness: “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.”
His words are a call to scrutinize the motives behind such criticisms and to recognize that well-executed repurchases can be a win for all stakeholders.
To illustrate his point, Buffett offers a simple analogy: three shareholders of a local auto dealership, one of whom manages the business. If a passive owner sells their interest back to the company at a price attractive to the remaining shareholders, “has this transaction harmed anyone?
Is the manager somehow favored over the continuing passive owners? Has the public been hurt?” The answer, of course, is no. This example underscores the fairness and efficiency of value-accretive repurchases, which align the interests of all parties involved.
Buffett’s letter also highlights Berkshire’s own actions in 2022, where the company repurchased 1.2% of its outstanding shares, directly increasing shareholders’ interest in its “unique collection of businesses.”
Similarly, repurchases by Apple and American Express—two of Berkshire’s significant investments—boosted the company’s ownership without any additional cost. These moves exemplify Buffett’s disciplined approach to capital allocation, always prioritizing the long-term interests of shareholders.
Beyond the specifics of repurchases, Buffett’s letter reflects a broader philosophy of trust and transparency. He notes that many Berkshire shareholders, including centimillionaires and billionaires, have never studied the company’s financial figures in detail.
Instead, they trust Buffett and Charlie Munger to manage their investments with the same care as their own. “That is a promise we can make,” Buffett writes, a testament to the integrity that has defined his leadership for decades.
In a world where short-term thinking and sensationalism often dominate, Buffett’s wisdom stands as a beacon of rationality.
His insights on share repurchases remind us that sound financial decisions are rooted in logic, not ideology. As investors and observers, we would do well to heed his advice: focus on the math, avoid overpaying, and trust those who have proven their commitment to value creation.
In doing so, we can all benefit from the enduring principles that have made Berkshire Hathaway a model of success.
You can read the entire letter here:
Berkshire Hathaway 2022 Annual Letter
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