1677348140 Warren Buffett defends buybacks to Berkshire Hathaway shareholders

Warren Buffett defends buybacks to Berkshire Hathaway shareholders

Warren Buffett has fiercely defended stock buybacks in his annual letter to Berkshire Hathaway shareholders, saying that stock purchases by Berkshire and the dozens of public companies that Berkshire owns are a boon for investors.

The 92-year-old investor’s comments on Saturday came from the shortest annual letter he has published in decades.

They come weeks after a new tax on share buybacks went into effect in the US. The tax was one of the few revenue-boosting measures to gain unanimous support from Senate Democrats when they passed the Inflation Reduction Act, President Joe Biden’s comprehensive climate and tax bill.

“When you’re told that all buybacks hurt shareholders or the country, or particularly benefit CEOs, you’re either listening to an economically illiterate or a well-spoken demagogue (characters that aren’t mutually exclusive),” Buffett wrote.

Berkshire’s chief executive said buybacks “at value-added prices” benefit all shareholders, citing investments his company made in American Express and Coca-Cola in the 1990s.

While Berkshire has stopped buying new shares in these companies, buybacks conducted by AMEX and Coca-Cola have increased the sprawling conglomerate’s holdings in the two companies, making Berkshire its largest investor.

Berkshire has ramped up buying its own stock in recent years, especially during times when Buffett found few attractive investment alternatives. The company spent $7.9 billion buying its own stock last year.

Warren Buffett defends buybacks to Berkshire Hathaway shareholders

Buybacks will be taxed for the first time this year, with officials expecting stock buybacks could bring $74 billion in revenue to the US Treasury over the next decade, a number that could rise further if US Politicians raise the tax rate from 1 percent.

Buffett told shareholders Saturday that he expects Berkshire to pay much more in taxes in the coming years as the sprawling conglomerate grows, calculating that the company has paid $32 billion in taxes over the past decade.

“We owe the country no less: America’s momentum has contributed enormously to the success that Berkshire has achieved — a contribution that Berkshire will always need,” he wrote. “We are counting on the American tailwind, and although it has been weakened from time to time, its momentum has always returned.”

Buffett offered a few nuggets of wisdom in an annual letter that’s typically showered by the investing public for his thoughts on investing and the world.

This year’s letter contained nearly a page of quotes from his longtime partner, Charlie Munger.

The letter was only 10 pages long, about half the length of his letters since 2000. His letters have gotten shorter with age; However, the hundreds of pages he has written to shareholders since the 1970s mean investors need only search his archives to find his views.

Column chart of page counts showing Shortening: length of Warren Buffett's annual letters

Berkshire reported earnings of $18.2 billion in the fourth quarter of 2022, down more than 50 percent year-on-year. For the full year, the company reported a net loss of $22.8 billion compared to a profit of $89.8 billion in 2021.

However, those numbers are being dramatically altered by the price swings of Berkshire’s $309 billion stock portfolio, which fluctuated last year as volatility gripped financial markets. Accounting regulations require Berkshire to report these unrealized gains and losses in its results each quarter.

Buffett said that measurement is “100 percent misleading when viewed quarterly or even annually.”

The company’s underlying businesses, which include BNSF railroad and ice cream supplier Dairy Queen, generated profit of $6.7 billion in the last three months of the year, down 8 percent year-on-year.

Buffett said full-year operating income of $30.8 billion was a record high for Berkshire.