Lessons From Warren Buffett

Lessons From Warren Buffett: The Magic of Stock Buybacks

American Express, Apple, Coca-Cola, what do they all have in common? They are among the myriad companies that regularly buy back their own stock. For example, Apple bought back $81 billion of its share in 2021 alone. Warren Buffet is quick to point out the incredible advantages of stock buybacks (as long as the company repurchasing its shares is doing so at a price below their intrinsic value). It’s the easiest investing there is. As a shareholder, you are gaining an ever larger stake in a company, tax free, all without doing a thing.

“We owned 150 million shares of American Express. I think we bought our last share in 1998, or something like that, and we then owned 11.2% of the American Express company. And since then, they’ve sent us a check every quarter as a dividend. And so, we’ve taken some cash a little bit as they’ve gone along. And now we own 20% of American Express. Now, that’s what’s happened because they repurchased shares,” Warren Buffett said at the 2022 Berkshire Hathaway Annual Meeting. “And like I say, we’ve gone from 11.2% to 20%. And if you’re using your American [Express] card, or whatever it may be, 20% of whatever earnings contribute a little to our interest that used to be 11.2%, and we’ve done it without putting up any money. Now, imagine if you owned a farm, and you had 640 acres, and you farmed it every year, and you made a little money on it, and you enjoyed farming, and somehow, twenty or so years later, it had turned into 1,100 or 1,200 acres. . . . If you do it at the right price, there’s nothing better than buying in your own business. . . . It is the simplest thing in the world, and then I read all this stuff. It is unbelievable how people can’t figure out something that, you know, if they owned a farm and the guy next to them had a farm and somehow you were getting more of his farm all the time without putting up any money, while you farmed your own farm . . . you’d feel very good about it.”

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© 2022 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is