Warren Buffett:
what Warren Buffett actually wrote in his annual letter. (Emphasis mine.)
“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.”
However, the question is whether these buybacks were value-accretive to shareholders.
“A new study, “Share Repurchases on Trial,” by accounting and finance professors Nicholas Guest of Cornell University, S.P. Kothari of the Massachusetts Institute of Technology and Parth Venkat of the University of Alabama, analyzes the stock returns of thousands of companies from 1988-2020, comparing those that repurchased shares against firms that didn’t, adjusting for their size and other factors. In the year of a repurchase, companies that did large or frequent buybacks had slightly lower—not higher—returns. Over longer periods, their returns were indistinguishable.” – Jason Zweig
Clearly, if there is no real benefit to higher returns, then the buybacks were not value-accretive to shareholders. Which then fosters the question, why do they continue to do it?
Share buybacks only return money to those individuals who sell their stock. This is an open market transaction, so if Apple (AAPL) buys back some of its outstanding stock, the only people who receive any capital are those who sold their shares.
So, who are the ones mostly selling their shares?
It’s the insiders, of course, as changes in wage structures since the turn of the century became heavily dependent on stock-based compensation. Insiders often sell shares “given” to them as part of their overall compensation structure to convert them into actual wealth.
As of May 2025, corporate stock buyback authorizations are on track to eclipse $1.35 trillion this year, with more than $1 trillion executed. This will exceed any other year in the market since the turn of the century.
The data should lead one to question why corporate stock buybacks have grown steadily since the turn of the century. Such is particularly the case when the overreliance on buybacks at non-accretive valuations to boost stock prices has become commonplace.
To the point where corporations borrowed money at low interest rates to fund the buyback.
Despite the popular narrative that buybacks return capital to shareholders, the data and behavior of corporate management tell a different story. Buybacks overwhelmingly inflate earnings per share and boost short-term stock prices, which are tied directly to executive compensation. That incentive skews the timing and intent of buyback programs away from long-term value creation and toward short-term financial engineering.
Jeff Immelt, former CEO of General Electric, learned the hard way that a share buyback at the wrong time can backfire.
Timing is key
One thing that is guaranteed to torpedo the success of any share buyback programme is bad timing. The once mighty General Electric learned this the hard way. GE’s problems started during the 2008 financial crisis, and it only just managed to turn the corner - thanks in part to a cash injection from Warren Buffett.
However, this “near-death” experience didn’t stop GE from quickly resuming its share buyback activities - which were often ill-timed and executed at inflated prices. Eventually, its equity base melted away and the rating agencies started to downgrade GE’s credit rating. In 2018, management pulled the emergency brake and halted the buybacks - but it was too late. What had once been the world’s most valuablecompany was dropped from the Dow Jones. And in April of this year, GE completed its split into three independent, listed companies: GE Aerospace, GE Vernova and GE Healthcare, marking the end of what was once one of the world’s biggest conglomerates.