{"id":19959,"date":"2023-08-01T23:56:00","date_gmt":"2023-08-01T15:56:00","guid":{"rendered":"https:\/\/www.granitefirm.com\/blog\/us\/?p=19959"},"modified":"2024-12-19T10:28:19","modified_gmt":"2024-12-19T02:28:19","slug":"buffetts-view-on-share-repurchase","status":"publish","type":"post","link":"https:\/\/www.granitefirm.com\/blog\/us\/2023\/08\/01\/buffetts-view-on-share-repurchase\/","title":{"rendered":"Buffett&#8217;s view on share repurchase"},"content":{"rendered":"\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #ffffff;color:#ffffff\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #ffffff;color:#ffffff\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/08\/01\/buffetts-view-on-share-repurchase\/#Share_repurchase_in_my_books\" >Share repurchase in my books<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/08\/01\/buffetts-view-on-share-repurchase\/#2016_shareholder_letter\" >2016 shareholder letter<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/08\/01\/buffetts-view-on-share-repurchase\/#2022_shareholder_letter\" >2022 shareholder letter<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/08\/01\/buffetts-view-on-share-repurchase\/#Related_articles\" >Related articles<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Share_repurchase_in_my_books\"><\/span>Share repurchase in my books<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>I suggest that friends read the last 5-6 sections of the book &#8220;<a href=\"https:\/\/www.books.com.tw\/products\/0010889106?sloc=main\" target=\"_blank\" rel=\"noreferrer noopener\">The Rules of Super Growth Stocks Investing<\/a>&#8221; and the last 6-7 sections of the book &#8220;<a href=\"https:\/\/www.books.com.tw\/products\/0010935641?sloc=main\" target=\"_blank\" rel=\"noreferrer noopener\">The Rules of 10 Baggers<\/a>&#8221; about stock repurchases, and then come back Read this article again, it will be helpful to everyone.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"2016_shareholder_letter\"><\/span>2016 shareholder letter<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In his <a href=\"https:\/\/berkshirehathaway.com\/letters\/2016ltr.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">2016 shareholder letter<\/a>, Buffett wrote the following snippet:<\/p>\n\n\n\n<p>In the investment world, discussions about share repurchases often become heated. But I\u2019d suggest that participants in this debate take a deep breath: Assessing the desirability of repurchases isn\u2019t that complicated.<\/p>\n\n\n\n<p>From the standpoint of exiting shareholders, repurchases are always a plus. Though the day-to-day impact of these purchases is usually minuscule, it\u2019s always better for a seller to have an additional buyer in the market.<\/p>\n\n\n\n<p>For continuing shareholders, however, repurchases only make sense if the shares are bought at a price below intrinsic value. When that rule is followed, the remaining shares experience an immediate gain in intrinsic value. Consider a simple analogy: If there are three equal partners in a business worth $3,000 and one is bought out by the partnership for $900, each of the remaining partners realizes an immediate gain of $50. If the exiting partner is paid $1,100, however, the continuing partners each suffer a loss of $50. The same math applies with corporations and their shareholders. Ergo, the question of whether a repurchase action is value-enhancing or value-destroying for continuing shareholders is entirely purchase-price dependent.<\/p>\n\n\n\n<p>It is puzzling, therefore, that corporate repurchase announcements almost never refer to a price above which repurchases will be eschewed. That certainly wouldn\u2019t be the case if a management was buying an outside business. There, price would always factor into a buy-or-pass decision.<\/p>\n\n\n\n<p>When CEOs or boards are buying a small part of their own company, though, they all too often seem oblivious to price. Would they behave similarly if they were managing a private company with just a few owners and were evaluating the wisdom of buying out one of them? Of course not.<\/p>\n\n\n\n<p>It is important to remember that there are two occasions in which repurchases should not take place, even if the company\u2019s shares are underpriced. One is when a business both needs all its available money to protect or expand its own operations and is also uncomfortable adding further debt. Here, the internal need for funds should take priority. This exception assumes, of course, that the business has a decent future awaiting it after the needed expenditures are made.<\/p>\n\n\n\n<p>The second exception, less common, materializes when a business acquisition (or some other investment opportunity) offers far greater value than do the undervalued shares of the potential repurchaser. Long ago, Berkshire itself often had to choose between these alternatives. At our present size, the issue is far less likely to arise.<\/p>\n\n\n\n<p>My suggestion: Before even discussing repurchases, a CEO and his or her Board should stand, join hands and in unison declare, \u201cWhat is smart at one price is stupid at another.\u201d<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<p>To recap Berkshire\u2019s own repurchase policy: I am authorized to buy large amounts of Berkshire shares at 120% or less of book value because our Board has concluded that purchases at that level clearly bring an instant and<br>material benefit to continuing shareholders. By our estimate, a 120%-of-book price is a significant discount to Berkshire\u2019s intrinsic value, a spread that is appropriate because calculations of intrinsic value can\u2019t be precise.<\/p>\n\n\n\n<p>The authorization given me does not mean that we will \u201cprop\u201d our stock\u2019s price at the 120% ratio. If that level is reached, we will instead attempt to blend a desire to make meaningful purchases at a value-creating price with a related goal of not over-influencing the market.<\/p>\n\n\n\n<p>To date, repurchasing our shares has proved hard to do. That may well be because we have been clear in describing our repurchase policy and thereby have signaled our view that Berkshire\u2019s intrinsic value is significantly higher than 120% of book value. If so, that\u2019s fine. Charlie and I prefer to see Berkshire shares sell in a fairly narrow range around intrinsic value, neither wishing them to sell at an unwarranted high price \u2013 it\u2019s no fun having owners who are disappointed with their purchases \u2013 nor one too low. Furthermore, our buying out \u201cpartners\u201d at a discount is not a particularly gratifying way of making money. Still, market circumstances could create a situation in which repurchases would benefit both continuing and exiting shareholders. If so, we will be ready to act.<\/p>\n\n\n\n<p>One final observation for this section: As the subject of repurchases has come to a boil, some people have come close to calling them un-American\u2013characterizing them as corporate misdeeds that divert funds needed for productive endeavors. That simply isn\u2019t the case: Both American corporations and private investors are today awash in funds looking to be sensibly deployed. I\u2019m not aware of any enticing project that in recent years has died for lack of capital. (Call us if you have a candidate.)<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"2022_shareholder_letter\"><\/span>2022 shareholder letter<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The <a href=\"https:\/\/berkshirehathaway.com\/letters\/2022ltr.pdf\" target=\"_blank\" rel=\"noopener\">2022 shareholder letter<\/a> stated: &#8220;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 (characters that are not mutually exclusive).&#8221;<\/p>\n\n\n\n<p>&#8220;The math isn\u2019t complicated: When the share count goes down, your interest in our many businesses goes up. Every small bit helps if repurchases are made at value-accretive prices. Just as surely, when a company overpays for  repurchases, the continuing shareholders lose. At such times, gains flow only to the selling shareholders and to the friendly, but expensive, investment<br>banker who recommended the foolish purchases.&#8221;<\/p>\n\n\n\n<p>&#8220;Gains from value-accretive repurchases, it should be emphasized, benefit all owners \u2013 in every respect.&#8221;<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"155\" height=\"102\" src=\"https:\/\/www.granitefirm.com\/blog\/us\/wp-content\/uploads\/sites\/2\/2023\/05\/rp-1600x1200-1.jpg\" alt=\"repurchase\" class=\"wp-image-19960\"\/><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"block-9d402b81-75c9-41fa-9a2d-6be1252e074e\"><span class=\"ez-toc-section\" id=\"Related_articles\"><\/span>Related articles<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2024\/12\/16\/capital-alchemy-repurchase\/\">Apple&#8217;s multiple LT compound capital alchemy is repurchase, 41.9% shares reduced in 12 years<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2024\/12\/18\/apple-repurchase\/\">Apple repurchase, Nvidia capital operation, Tesla, AI bubble, Willow quantum chip, this blog turns off comments<\/a><\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2024\/06\/16\/gm-capital-operations\/\" target=\"_blank\" rel=\"noreferrer noopener\">Capital operations are the root cause General Motors\u2019 30% rise so far this year<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/03\/22\/share-repurchase\/\" target=\"_blank\" rel=\"noreferrer noopener\">Share repurchase keep share price  underpinned<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/08\/01\/buffetts-view-on-share-repurchase\/\" target=\"_blank\" rel=\"noreferrer noopener\">Buffett&#8217;s view on share repurchase<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/04\/27\/buffett-portfolio\/\" target=\"_blank\" rel=\"noreferrer noopener\">The commonalities of Buffett portfolio \u2013 cheap, fixed income, repurchase<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/12\/27\/inflation-reduction-act\/\">The impact of the Inflation Reduction Act on US stocks<\/a>&#8220;<\/li>\n<\/ul>\n\n\n\n<p><em><strong>Disclaimer<\/strong><\/em><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><em>The content of this site is the author\u2019s personal opinions and is for reference only. I am not responsible for the correctness, opinions, and immediacy of the content and information of the article. Readers must make their own judgments.<\/em><\/li>\n\n\n\n<li><em>I shall not be liable for any damages or other legal liabilities for the direct or indirect losses caused by the readers&#8217; direct or indirect reliance on and reference to the information on this site, or all the responsibilities arising therefrom, as a result of any investment behavior.<\/em><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>In 2016 and 2022 shareholder letters, Buffett offered his views on stock buybacks<\/p>\n","protected":false},"author":1,"featured_media":19960,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[164,11],"tags":[],"class_list":["post-19959","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-repurchase","category-buffett"],"_links":{"self":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts\/19959","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/comments?post=19959"}],"version-history":[{"count":12,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts\/19959\/revisions"}],"predecessor-version":[{"id":38453,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts\/19959\/revisions\/38453"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/media\/19960"}],"wp:attachment":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/media?parent=19959"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/categories?post=19959"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/tags?post=19959"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}