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Corporate Stock Buybacks To Exceed $1 Trillion in 2023
And this is a great thing. Don't tell Warren Buffett otherwise.
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A public company’s number one priority is to drive shareholder returns. In fact, they have a fiduciary duty to do this. When a company repurchases its own shares, if done responsibly and at levels that they believe are accretive to current shareholders, then this helps drive shareholder returns over time.
So why are some politicians overly vocal about the need to not only tax companies a higher amount on stock repurchases, but also try to limit them? Isn’t the ability of a company to utilize how to spend its cash a decision that a capitalist and free economy affords the privilege of allowing a company to do?
We have all come to love how Warren Buffet doesn’t mince his words. As he stated in the 2022 Berkshire Hathaway Annual Shareholder Letter just recently released:
The math isn’t complicated: When the share count goes down, your interest in our many businesses goes up. Every small bit helps if repurchases are made at value-accretive prices. Just as surely, when a company overpays for repurchases, the continuing shareholders lose. At such times, gains flow only to the selling shareholders and to the friendly, but expensive, investment banker who recommended the foolish purchases.
Gains from value-accretive repurchases, it should be emphasized, benefit all owners – in every respect. Imagine, if you will, three fully-informed shareholders of a local auto dealership, one of whom manages the business. Imagine, further, that one of the passive owners wishes to sell his interest back to the company at a price attractive to the two continuing shareholders. When completed, has this transaction harmed anyone? Is the manager somehow favored over the continuing passive owners? Has the public been hurt?
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).
I prefer to heed the advice and opinions of those that have led businesses over the course of their careers as opposed to politicians, many of whom have never been involved in private business. The thought that stock repurchases should be taxed at higher rates and that they should be limited because they “artificially” prop up the market don’t resonate with me one bit.
And I bet they don’t resonate with you either.
Thanks for reading. Until next time.
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