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Warren Buffett explains the continued strength of share buybacks



Unlike dividends, which are usually executed with the intention that they will always be paid out to shareholders if the business situation does not change dramatically, repurchases offer management the opportunity to do what Buffett likes most: In discussing why opportunistic buybacks are better than continuing dividends, Buffett told CNBC in February 2018: "The best chance of capitalizing is when things go out."

That's true, what he has said on CNBC over 10 percent this week decline in Apple is a good thing because it means that management would probably buy more stocks.

In an interview with CNBC in 2015, Buffett said, "Many managements are just deciding that they will buy X billion over X months." That's no way to buy things that you buy when you sell less than they are worth. .. It's not a complicated equation to figure out whether it's beneficial or not to buy back shares. "

At the Annual Meeting next year In 201

6, he added," Every time you buy stocks at a lower price this is beneficial for the shareholders … but it should be a demonstrable margin, "he said.

This is important for shareholders monitoring the C-Suite at a time of record stock prices and share buybacks – companies not only benefit from higher profits, but also from the recent corporate tax cuts – and it's not easy to offer a formula that a "verifiable margin" proves.

Even though Buffett used the 1.1-1.2 times book value as a "conservative" way to create a buyback over the past decade, he told Berkshire shareholders many years ago that neither the price-earnings ratio nor the Book Value Alone

Returning to "intrinsic value," he chose a repurchase method that was also used by JP Morgan CEO Jamie Dimon. "Jamie Dimon says very clearly that he will buy the stock back if he buys it below what he considers to be intrinsic value," Buffett told shareholders in 2016.

"If you value stocks back over a rationally calculated intrinsic stock, they hurt shareholders – as if you were issuing shares below that number, they hurt shareholders," said the billionaire. "The hard part comes with intrinsic value, there's much more to intrinsic value than P / E, " he added, though there's no way to reduce the intrinsic value to four decimal places, " or something similar."


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