2022: Buffett explains share repurchases.

CHARLIE MUNGER: Well, but think in the scheme of things, imagine buying in $60 billion worth of our own stock. We like the businesses. We like the price we’re paying. No overhead, no cost, no nothing, just more interest in what we already owned. It isn’t that we’re totally wasting our time.

WARREN BUFFETT: Yeah, and if you look at it, there are — you can read hundreds of thousands — maybe millions of words — written on stock repurchases, and what this is and what that is and all this kind of thing. It’s not very complicated. (Laughs)

I mean, if you had a partner in a lemonade stand and they wanted to sell out — sell their interest — or two partners and one of them wanted to sell their interest — I mean — and the business had the money to buy it — our little lemonade stand — and they were offering at a price that was good for the other two people who are going to remain, you’d buy it.

Now, the thing that’s fascinating to me is what you can accomplish, and still — people don’t pay any attention to it.

We owned — in 1998, you know — this was more than 20 years ago — we owned about 150 million — I don’t know whether they’ve split — whatever it is — if they’ve split, it’s split-adjusted — but 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 — wonderful 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. That happens to have worked out extremely well. If they overpaid for the stock and all that — it doesn’t solve every problem — but it’s a wonderful thing if you’ve got an asset you like and they take your ownership interest up.

And like I say, we’ve gone from 11.2% to 20%. And if you’re using your American 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 — 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, 20 or so years later, it had turned into 11-hundred or 12-hunred acres. I mean, you’d say, you know, how long has this been going on? You know, what could possibly be? — you know, is this un-American? — or whatever it may be. I mean, is it, you know, sensible use of the (unintelligible) cost of capital? Blah, blah, blah, blah, blah.

If you do it at the right price, there’s nothing better than buying in your own business.

We owned — I mentioned and used Apple as an example of how our interest in Apple, you know — every time a company that earns a hundred billion a year — you know — it means that our interest in it goes up a tenth of a percent. You know, we’ve added another a hundred million to earnings.

Well, I mean, it takes a lot of work (laughs) — a hundred million in earnings. And, you know, in the first quarter they just reported — they’re on a fiscal year — but they just reported their March quarter — and, you know, they earned more money and they had fewer shares outstanding.

And we actually bought a little more Apple, in the first quarter or so. We decided we wanted to own a greater interest. And on top of that, we knew that we would own an even greater interest if they kept buying in their shares, which — we didn’t have any insider information or anything — but certainly, it would seem the way to bet.

And, you know, we feel better because we bought the shares we bought in the market. And we feel (laughs) just as good as the fact — by the fact — they used their cash to buy out some of the other people.

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 — that at least, you know, you’re using some of the earnings for that — you’d feel very good about it.

Have you got any explanation for it, Charlie?