Warren Buffett & Charlie Munger on Share Buybacks: Good or Bad for Shareholders? | Berkshire 2021

[Transcript]

BECKY QUICK: Alright, this question comes from Denny Poland, a shareholder from Pittsburgh. "A prominent senator (Sen. Elizabeth Warren, D-Massachusetts) recently categorized share buybacks as a form of market manipulation. You’ve often said that repurchasing shares at prices below intrinsic value benefits continuing shareholders. Could you and Charlie please elaborate on the higher order effect that these share repurchases have on society?"

WARREN BUFFETT: Yeah, they’re a way of — they’re a way of, essentially, of distributing cash to the people that want the cash when other co-owners mostly want you to reinvest. And it’s a savings vehicle.

If the four of us sitting at this table decided we’d buy a few Dairy Queen franchises, we form a little company, and we all put in a million dollars or something like that, and we 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 to all four of us, three of us — of whom don’t want it. 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.

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 out of something (Laughs) and you’re able to do it at prices advantageous to the people who are staying. And it helps slightly the person that wants out.

And a majority of the Berkshire shareholders — a great majority — we had a vote on dividends one time — we’ve got 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.

And people look — individuals — a huge number — look at Berkshire as something they’re going to own till they die. Now they may — their circumstances may change. Their needs may change. But the savers generally keep saving.

We just recently had somebody that father came with us 60 years ago, and billions of dollars. And they just — they weren’t saving, exactly, for their old age, just was sort of built into them that they liked to do it. Now, philanthropies will get a lot of money and so on.

It’s the most — what could be more logical than, if a very small minority of your holders want to get out, and most of them want to stay in, and the person that wants to get out wants the money, you don’t give the money to everybody. You give it to the one who wants it.

And you do it at a price that is beneficial to most parties. 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.

Charlie, got anything?

CHARLIE MUNGER: Well, I — if you’re repurchasing stock, just a bull it higher, it’s deeply immoral. But if you’re repurchasing stock because it’s a fair thing to do in the interest of your existing shareholders, it’s a highly moral act. And the people who are criticizing it are bonkers.

Source: https://buffett.cnbc.com/2021-berkshire-hathaway-annual-meeting/

 

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