Warren Buffett is the one who points directly to Washington and the Government of Joe Biden, which has carried out ‘non-gratas’ operations, the repurchases of its own shares by large companies listed on Wall Street. The nonagenarian does not stitch without a thread, but this time he seems to put on the bandage before the wound.
“When it is said that all buybacks are detrimental to shareholders or the country, or beneficial to CEOs, you are listening to an economic illiterate or an eloquent demagogue (characters who are not excluded),” Buffett says in a letter that includes the gauntlet thrown down by Biden against stock buybacks… and he returns it in a somewhat hostile way.
Buffett enters the scene in full recovery of the share buyback plans on Wall Street, which will once again be above a trillion dollars in 2023 among the 500 companies of the S&P 500, according to estimates by S&P Dow Jones, after until the On February 17, quarterly announcements worth 220,000 million have been reached between the companies of the S&P 500 and the 3,000 of the Russell 3000 of mid-caps, according to another report by Goldman Sachs cited by ‘The Wall Street Journal’.
Among the most prominent stock reward announcements on Wall Street so far in 2023 are the $75 billion reward program from the oil company Chevron or the $40 billion plan from Meta, the owner of Facebook, Instagram and WhatsApp, which has made it possible to counteract the first drop in revenue in its history and the restructuring process it is facing with thousands of layoffs on the stock market.
Uncertainty with Apple, the great recommender
Buffett explains in his letter that “the math” behind share buybacks is straightforward and has allowed him to raise his stake in companies as shareholders in the company’s business increases. If the buybacks were made at prices that create value, every little contribution helps.
Buffett also noted that the proceeds from value-creating buybacks benefit all owners of the company, not just a select group of shareholders. The idea is that, if done effectively, share buybacks can be “a powerful tool to create shareholder value,” explains the Berkshire owner. The defense of this operation emerges at a time of risk of stopping it.
In reality, what the oracle is saying is that the redemption of shares leaves the same benefits to be distributed among fewer titles and that drives a key valuation ratio: the Earnings per Share (EPS) and the PER, the result of relating benefits and stock listing. What Buffett does not say is that the repurchases of shares defined from the company itself are the largest investor in the stock market of their own titles and focus the company’s management on obtaining resources from the business and redirecting them to the stock market.
The oracle of Omaha is aware that much of the good moment of its investment portfolio despite the massive accounting losses of 22,000 million dollars registered by its holding company in 2022. At the head are its shares in Berkshire Hathaway itself but on all the shares that your investment vehicle has in Apple and Bank of America, among others. Technology alone has allocated titles of more than 500,000 million dollars to acquire their own in recent years.
Will Biden put a stop to the buyback party?
But Buffett’s view is about to run up against Biden’s view on the eve of Tim Cook’s update of Apple’s shareholder return plans next month. Berkshire has invested more than 150,000 million dollars in the manufacturer of the iPhone, which is not going through the best of times after the drop in revenue, profits and its cash on hand as a result of manufacturing problems in China and investment in businesses capital intensive like the Apple TV+ platform.
Biden is the intellectual author of the phrase that Buffett criticizes -repurchases are dangerous for companies and for the country-, while he has been in favor of placing limits on share repurchases so that companies invest more in their own business. , relocate their production in the US after the growing problems with China and hire more employees and pay more taxes instead of spending it on the stock market.
However, the large Wall Street company seems to maintain plans to once again set records by repurchasing shares in 2023. There are uncertainties surrounding this issue and the first of these is the possible legislative action of the US president. To this is added the uncertainty due to the war in Ukraine, the tension with China and the rising cost of corporate debt due to the rise in rates, something that weighed down the repurchases of treasury stock in 2022 in one of the worst stock market years in the decade. Will Wall Street be able to sustain the prices without the buybacks growing in 2023?