Warren Buffett defends buybacks to Berkshire Hathaway shareholders

In his annual letter to Berkshire Hathaway shareholders, Warren Buffett offered an all-out defense against stock buybacks, saying that the stock buybacks of Berkshire and the dozens of publicly traded companies it owns are a boon for investors.

The 92-year-old investor’s comments on Saturday came in his shortest annual letter in decades.

They come weeks after a new tax on share buybacks took effect in the United States. The tax was one of the few revenue-raising measures to find unanimous support among Senate Democrats when they passed the Inflation Reduction Act, President Joe Biden’s comprehensive climate and tax bill.

“When you say that all buybacks are bad for shareholders or the country, or especially beneficial for CEOs, you’re either listening to an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive),” Buffett wrote.

Berkshire’s chief executive said that when buybacks were “executed at a value-enhancing price” it benefited all shareholders, pointing to his company’s investments in American Express and Coca-Cola in the 1990s.

While Berkshire stopped buying new shares in those businesses, buybacks by AMEX and Coca-Cola increased the sprawling conglomerate’s stake in the two companies, making Berkshire the largest investor.

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

This year’s buybacks are taxed for the first time, with officials predicting that share buybacks could generate $74 billion in revenue for the U.S. Treasury over the next decade, which could rise further if U.S. policymakers raise the 1 percent tax rate.

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

“We owe the country no less: America’s dynamism has contributed enormously to Berkshire’s success — a contribution Berkshire will always need,” he wrote. “We count on American Tailwind, and although it has been dampened from time to time, its drive has always returned.”

Buffett offered some nuggets of wisdom in an annual letter that investors usually pour on his thoughts on investing and the world.

This year’s missive included almost a page of quotes from his old partner, Charlie Munger.

The letter was short, 10 pages, about half the size of his letters since 2000. Its leaves have shortened with age; however, the hundreds of pages he has written to shareholders since the 1970s mean that investors need only scroll through his archives to find his views.

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

But those numbers have been drastically altered by fluctuations in the price of Berkshire’s $309 billion stock portfolio, which has surged in the wake of volatility in financial markets last year. Accounting rules require Berkshire to report these unrealized gains and losses in its earnings each quarter.

According to Buffett, this measurement is “100 percent misleading if you look at it quarterly or even annually.”

The company’s underlying businesses, which include railroad BNSF and ice cream purveyor Dairy Queen, posted a profit of $6.7 billion in the last three months of the year, down 8 percent from a year earlier.

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