2021: Are share buybacks a form of market manipulation?

BECKY QUICK: All right. This question comes from Danny Poland, a shareholder from Pittsburgh. A prominent Senator 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 BUFFET: Yeah, they’re a way essentially of distributing cash to the people that want the cash when other co-owners mostly want you to re-invest, 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 formed 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, all four of us, three of us of whom don’t want it. And, and we can, we can repurchase the shares at a fair price. It was just the four of us. We pick out a fair price and the fourth one gets bought out of his interest.

It, it, 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 and you’re able to do it at a price that’s advantageous to the people that are staying, and it helps slightly like the person that wants out. And a majority of the Berkshire shareholders, a great majority we had to 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 in, and people look, individuals, huge number, look at Berkshire as something they’re going to own until they die and now their circumstances may change, their needs may change, but the savers generally keep saving.

We’ve just recently had somebody that bothered, came with us 60 years ago and billions of dollars. And they just, they weren’t saving exactly for their old age. It just was sort of built into them that they liked to do it, now philanthropies will get got 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 wants to get out, wants the money, you don’t get 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 any?

CHARLIE MUNGER: Well, if you’re repurchasing stock, just a bullet 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 were criticizing it are bonkers.