Buffett: I find it almost impossible to believe that it's terrible to repurchase shares
Billionaire investing icon Warren Buffett, the CEO of Berkshire Hathaway (BRK-B, BRK-A), defended the practice of share buybacks at the company's annual meeting on Saturday.
In recent years, stock buybacks have come under scrutiny politically, on the view that they enrich shareholders and top executives rather than employees.
Buffett, 90, argued that share buybacks are a "way essentially of distributing cash to people that want the cash when other co-owners mostly want you to reinvest."
To illustrate his point, he used an example of owning Dairy Queen franchises among the Berkshire Hathaway vice-chairs at the event — Charlie Munger, Ajit Jain, and Greg Abel.
"We formed a little company, and we all put in a million dollars or something like that and buy the Dairy Queen franchises, and they're doing well and three of the four of us want to keep buying more Dairy Queen franchises and we're not done building and saving for the future, and we're in the wealth creation business. And the fourth one says, 'Listen, I've gotten rich enough. I'd rather take some money out.' And, well, there's only two ways to do it — we can pay dividends, [it's to] all four of us, three of us who don't want it. And, and we can repurchase the shares at a fair price. If it's just the four of us, we pick out a fair price and the fourth one gets bought out of his interest."
In his commentary, Buffett dismissed the arguments that it is immoral to repurchase shares.
"I find it almost impossible to believe some of the arguments that are made that it's terrible to repurchase shares from a partner if they want to get something, and you're able to do it at prices advantageous to the people who are staying."
Berkshire Hathaway once held a vote among its shareholders for a dividend, which failed. Buffett noted that "a great majority" are "savers."
"Now that's partly because we've advertised ourselves as being that sort of a vehicle we've created that something we've stuck with it for 57 years," Buffett said, noting that a "huge number look at Berkshire as something they're going to own till they die."
"And now their circumstances may change, their needs may change, but the savers generally keep saving," he said, adding, "What could more logical than this is a very small minority of your holders want to get out and most of them want to stay in and the person wants to get out wants the money, you don't get the money to everybody? You give it to the one who wants it, and, and you do it at a price that is beneficial to most partners. On a private deal you'd work out the fair value, the market tells you the value in the case of a publicly traded company."
Munger, 97, Buffett's long-time business partner, said buybacks are "deeply immoral" if the share repurchase is doing it to push the stock higher.
"[But] if you're repurchasing stock because it's a fair thing to do in the interest of your existing shareholders, that's a highly moral act, and the people who are criticizing it are bonkers,” Munger said.
Full Coverage of Berkshire Hathaway's 2021 Annual Shareholders Meeting
Earlier, Berkshire Hathaway reported its fiscal first-quarter earnings results. The conglomerate revealed that it repurchased approximately $6.6 billion worth of its class A and class B shares.
In 2020, Berkshire repurchased $24.7 billion of its shares. Buffett and Munger have long said they would make those buybacks when they believed it would “both enhance the intrinsic value per share for continuing shareholders and would leave Berkshire with more than ample funds for any opportunities or problems it might encounter,” according to the latest annual shareholder letter.
Berkshire has approximately $140 billion in cash and cash equivalents, up $2 billion from the end of 2020.
"Repurchasing shares is something that helps them on their way to owning a larger percentage of Berkshire, as they go along. They'd love to see us buy another business, but they don't mind us intensifying their interest in the present business."
Julia La Roche is a correspondent for Yahoo Finance. Follow her on Twitter.
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