Warren Buffett on share buybacks
At Berkshire Hathaway’s Annual Shareholders’ Meeting broadcast live on Yahoo Finance, Warren Buffett answers a question about share buybacks.
All right, this question is from Denny Poland, a shareholder from Pittsburgh. A prominent senator recently classified share buybacks as a form of market manipulation. You have often said that buying back shares at prices below intrinsic value is beneficial to permanent shareholders. Could you and Charlie please explain the higher order effect that these share buybacks are having on the company?
WARREN BUFFETT: Their way of – their way, essentially, of handing out money to people who want money when the other co-owners mostly want you to reinvest and it’s a savings vehicle. If the four of us sitting at this table decided to buy a few Dairy Queen franchises, we were a little business, and we all invested a million or something like that, and we buy the Dairy Queen franchises, and they’re fine. And three of the four of us want to keep buying more Dairy Queen franchises. And we are not done building and saving for the future. And we are in the business of creating wealth. And the fourth said, look, I’m done with this. I have become quite rich. I prefer to withdraw money. Well there are only two ways to do it.
All four of us can pay dividends, three of which don’t want dividends, and and we can – we can buy back the shares at a fair price. If it were just the four of us, we would pick a fair price, and the fourth would be bought out for interest. I find it almost impossible to believe some of the arguments put forward that it is terrible to buy back shares from a partner if they want to get out of something. And you can do it cheaply for the people who stay, and it helps the person who wants to go out a little bit. And a majority of the Berkshire shares, the vast majority, on which we were to vote, a dividend. [INAUDIBLE]
We have savers. Now, part of that is because we have advertised ourselves as that kind of vehicle. We created that something. We’ve been sticking with that for 50 years, and – and people watch, individuals, many, look at Berkshire as something that they – they’re going to own until they die. They can, their circumstances may change, their needs may change, but savers generally continue to save. We just just had someone bother us, come with us 60 years ago, and billions of dollars, and they don’t have, they weren’t exactly saving for their old age, just to – just sort of built in them that they like to do it now.
Philanthropies will receive a lot of money, etc. It’s, it’s, it’s most, which might make more sense than if a very small minority of your holders want to go out and most want to stay, and the person wants out wants money. You don’t give everyone the money. You give it to whoever wants it, and you do it at a price that is beneficial to most parties. In a private transaction, you would calculate the fair value. The market tells you the value, in the case of a publicly traded company. Charlie go ahead …
CHARLIE MUNGER: Well, you buy back stocks just one more bullet. It is deeply immoral. But if you buy back shares because it is the right thing to do in the best interests of your existing shareholders, it is a highly moral act. And the people who criticize him are nuts.