Billionaire, Warren Buffett
Wall Street
Berkshire will have $130 billion in liquidity at the end of 2022
Billionaire Warren Buffett defended share buybacks in Berkshire Hathaway’s annual letter, arguing that he believes it is a beneficial practice for all shareholders.
“When you are told that all buybacks are harmful to shareholders or the country, or particularly beneficial to CEOs, you are either listening to an economically illiterate person or a silver-tongued demagogue,” Buffett, 92, said on Saturday. By pitting the populace against the elite class by exaggerating risks to raise fears).
The “Godfather of Omaha,” as Buffett is called, started the Berkshire share buyback program in 2011 and the practice has picked up pace in recent years amid soaring stock prices. The company spent a record $27 billion in buybacks in 2021, as Buffett saw few acquisition opportunities abroad.
It is noteworthy that the process of buying back shares is when a company buys some of its shares from shareholders again, taking advantage of its liquidity surpluses, and sometimes by borrowing, either because it believes that its shares themselves are the best investment opportunity available, or to support share prices, or as a form of dividend distribution, but indirect way.
The pace of the buyback this year by Berkshire has slowed to around $8 billion, as the company seized on opportunities in the face of a massive stock market sell-off and declining valuations. In this context, Berkshire acquired the insurance company, Alleghany, for $11.6 billion, which is Buffett’s largest deal since 2016, according to CNBC, which was viewed by Al Arabiya.net.
Buffett’s defense comes after the stock buybacks drew criticism from politicians who believe American companies should use their money in other ways to boost long-term growth, such as employee benefits and capital expenditures. Many say that buybacks often provide an additional boost to earnings-per-share growth, and when companies stop doing so, that goal becomes more difficult to achieve.
For his part, Buffett believes that buybacks are beneficial to shareholders because they provide a boost to the intrinsic value of a stock.
The famous billionaire said: “The math is not complicated: when the number of shares decreases, the share of investors in the company’s diversified business increases, and every small action becomes important, if the buybacks take place at prices that have a cumulative significance.” “It should be emphasized that the gains from cumulative buybacks benefit all shareholders – in all respects,” he added.
The legendary investor highlighted Apple and American Express, two of his biggest holdings, that have similar strategies. Buffett has said in the past that he admires Apple CEO Tim Cook’s share buyback program and how it gives Berkshire incremental ownership of every dollar of the iPhone maker’s profits without him having to put in any effort. .
“At Berkshire, we’ve directly increased your stake in our unique group of businesses by buying back 1.2% of the company’s outstanding shares,” Buffett said.
This comes as the Inflation Reduction Act, which imposes a 1% tax on buybacks, came into effect this year.
other messages
Buffett’s speech touched on some other topics, including praise for his longtime partner, 99-year-old Charlie Munger.
“I’ve been invested for more than 80 years – more than a third of the life of our country,” Buffett said. “I have yet to see when it makes sense to bet long-term against America. I very much doubt that any reader of this letter will have a different experience in the future.”
The much-admired investor added that Berkshire would always hold a large load of cash and US Treasury securities along with a wide range of companies for the future. The cash pile was nearly $130 billion at the end of 2022.
Buffett also revealed that future CEOs of Berkshire will have a significant portion of their net worth in the group’s shares, which are purchased with their own money.
Greg Appel, a potential successor to Buffett and vice chairman of Berkshire’s non-insurance business, spent more than $68m on Berkshire stock last year.
“At Berkshire, there will be no finish line,” Buffett said.
