Buffett touts benefits of buybacks in his shareholder letter

Billionaire Warren Buffett said critics of stock buybacks are “either an economic illiterate or a silver-tongued demagogue” or both, and all investors benefit from them as long as they are made at the right prices.

Buffett used part of his annual letter to Berkshire Hathaway shareholders Saturday to tout the benefits of repurchases that fiery Wall Street critics like Sens. Elizabeth Warren and Bernie Sanders and many other Democrats love to criticize. The federal government even added a 1 percent tax on buybacks this year after they ballooned to roughly $1 trillion in 2022.

“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),” wrote Buffett, who himself is a longtime Democrat.

Investor Cole Smead said Washington D.C. should take note of Buffett’s view on buybacks.

“Any politician, regardless of the aisle side, should stand up and be at attention to a statement like that,” said Smead, who is with Seattle-based Smead Capital Management.

Buffett used his typical self-deprecating style to say Berkshire’s remarkable record of doubling the returns of the S&P 500 over the last 58 years with him at the helm is the result of only “about a dozen truly good decisions — that would be about one every five years.”

Buffett pointed out how much Berkshire benefits from dividends that it receives from the huge investments in its portfolio like Coca-cola and American Express even though he refuses to pay a dividend at the Omaha, Nebraska-based conglomerate he leads because he believes he can generate a bigger return for shareholders by investing that cash. Coke paid Berkshire $704 million in dividends last year and American Express added $302 million, and those payments helped push the value of those stakes to $25 billion for Coke and $22 billion for American Express. Berkshire paid $1.3 billion for each of those investments in the 1990s.

Buffett said the key lesson for investors is that “it takes just a few winners to work wonders. And, yes, it helps to start early and live into your 90s as well.”