This might come as a surprise given my often controversial and contrarian views, but I live in fear of being wrong. I do my best to get my facts right and provide links to support them, but making mistakes is an occupational hazard. When I make a big one, I go all to pieces.
Years ago, when I left PR and wanted to return to reporting, I wrote an article for Deadline Detroit that was based on a fact I believed was correct and confirmed using a Wikipedia reference. No reporter worth their salt trusts Wikipedia for accurate information, but I gambled that it was highly unlikely the online encyclopedia would make the same factual error I did. Long story short, I slammed a CEO for a connection that he didn’t have.
Making matters worse, the CEO was exceptionally gracious and forgiving. I would have preferred he had validated my own feelings and called me a worthless POS, a peddler of “fake news” and a journalism disgrace. Instead, he invited me to meet with him and tour his factory.
I was so devastated by my error I didn’t write another story for several months.
Getting dissed by Warren Buffett
I recently became unnerved when I discovered that Warren Buffett dissed anyone who holds one of my deeply held views as an ‘economic illiterate.’ My instinctual reaction was that I must have screwed up royally because Buffett forgot more about investing than I’ll ever know. Upon further investigation and understanding, I’m holding my ground.
Let me walk you through the issue so you can make your own determination.
In this blog and elsewhere, I’ve railed about share buybacks, a once illegal form of stock manipulation that in most instances is guaranteed to goose a company’s stock price in the short term because it reduces the number of outstanding shares, thereby making each one more valuable.
I perceive share buybacks as hocus pocus stock price manipulation: GM in the past 18 months or so earmarked $22 billion in stock buybacks, which boosted the per share value of its stock but it’s still the same uninspiring automaker overseen by CEO Mary Barra, who is failing on all cylinders and driving the company into the ground.
In fact, the stock buybacks protect Barra from activist investors who might target her for GM’s dismal stock performance under her more than 11 years of leadership. At this posting, GM closed today at $42.49, a 6.2% increase from the $40 a share GM was trading at when Barra assumed command on January 15, 2014. The S&P 500 has risen 221% over the same period.
A ChatGPT analysis estimated that GM’s buyback program is nearly double the projected cost of absorbing President Trump’s tariffs. Instead, Barra likely will fire more employees.
Growing popularity
Stock buybacks have been all the rage in recent years as CEO pay has soared and most of the compensation is stock awards. The theory is that stock awards better align the interests of CEOs with their shareholders; if they make their stock prices soar, they are deemed deserving of their gargantuan compensation.
Stock awards for CEOs and other management employees dilute the holdings of existing shareholders. Stock buybacks undo some of the damage, and as they are subject to a minimal 1% tax, they are an efficient way for companies to use their profits to boost their share prices while legally shortchanging Uncle Sam, something GM has done with abandon in recent years.
Between 2018 and 2022, GM reported a total of $34 billion in U.S. profits but paid an effective federal tax rate of only 1.3% during that period. In 2021, GM’s effective federal income tax rate was 0.2%, with the company earning $9.4 billion in U.S. profits and paying just $20 million in federal income taxes.
Goldman Sachs estimated that U.S. share buybacks were set to grow by 13% and surpass $1 trillion this year for the first time ever, a 13% increase from the $925 billion in 2024.
Proponents of stock buybacks say the primary obligation of CEOs is to enrich their shareholders, and therefore diverting profits to buy back shares to boost stock prices is a worthy exercise. Even if one buys that argument, there’s evidence that stock buybacks are fool’s gold, at least for long-term investors.
Harmful sugar rush
Bradley Safalow, a respected market researcher, conducted an analysis revealing that companies with the largest buyback programs within the S&P 500 have consistently underperformed the broader market over the past decade.
“Stock buybacks are a sugar rush,” Safalow warned in a research note. “They’re good for a fleeting pop in the share price, but much like most candies, they tend to do more damage over the long term.”
The other day I wondered if legendary investor Warren Buffett had ever opined about share buybacks. Given that he’s famous for investing only in companies with quality managements, I figured he’d have a natural aversion to companies that effectively boost their stock prices by cheating.
I was badly mistaken.
Here’s what Buffett had to say in his 2023 letter to shareholders:
When you are told that all repurchases are harmful to shareholders or to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive).
Buffett himself has engaged in stock buybacks. Berkshire Hathaway, the conglomerate he leads, spent $24 billion buying back its shares in 2020 and then another $27 billion the following year.
You talking to me?
As I can’t be rightfully accused of being a demagogue, I took Buffett’s comment deriding those who question stock buybacks very personal. I’m guessing that Buffett’s “silver-tongued demagogue” reference was possibly aimed at Sen. Elizabeth Warren, a Congressional critic of share buybacks. He might have also been referring to President Biden, who proposed increasing the tax on stock buybacks to four percent, which would contribute $40 billion to the U.S. Treasury, assuming Goldman Sachs’ $1 trillion prediction is realized.
Buffett’s investing prowess is undeniable, but he’s not to be admired for some investments that have yielded his company considerable returns. Berkshire Hathaway has a 9.3% in Coca-Cola, valued at $24 to $25 billion depending on market fluctuations, and returning $776 million a year in dividends. Coke earns its money marketing sugary drinks that are linked to obesity, diabetes, cancer, and other diseases causing great harm to Americans and others around the world. It’s products have even been linked to soaring obesity in China.
I’m hardly a bleeding-heart liberal — in fact, I was an early critic who dared to speak out about so-called socially responsible investing (see here and here ) – but Coke and Pepsi are two companies my conscience would prevent me from profiting from.
Buffett also was a longtime promoter of Wells Fargo CEO John Stumpf and for many years was that bank’s biggest shareholder. Stumpf resigned in 2016 after it was revealed that Wells Fargo employees had created millions of unauthorized bank and credit card accounts to meet aggressive sales targets.
Berkshire Hathaway’s stock buybacks
For the record, I’m not bothered by Berkshire Hathaway’s stock buybacks. Berkshire Hathaway is essentially a capital allocation machine—more akin to a money management firm than a traditional operating company. It requires virtually no R&D, and its overhead is famously minimal. Share buybacks at Berkshire don’t mean fewer Bloomberg terminals or scaled-back analytical tools—they’re a strategic use of surplus capital, not a sacrifice of essential resources.
To be fair, Buffett said the only time companies should engage in stock buybacks is if their share prices are less than the “intrinsic value” of their enterprises. Given that I’ve yet to meet or read about a CEO who argued their stock was overvalued, I’m skeptical entrusting CEOs to do an honest value assessment of their stock price. At a minimum, a CEO should never be allowed to also serve as board chair, as is the case with GM’s Barra.
I’m also encouraged by this Substack commentary by Roger Lowenstein, former Wall Street Journal columnist whose acclaimed books include, Buffett, The Making of an American Capitalist. While Lowenstein opposes the return of regulatory prohibitions on stock buybacks, he acknowledges that companies that engage in them don’t deserve taxpayer bailouts.
As an example, Lowenstein cites the $25 billion government bailout of the major U.S. commercial airlines at the start of the pandemic. Given that the airlines had depleted their capital through stock buybacks with “significant” share repurchases, he argues there was good reason to allow the airlines to fail.
“Congress…could have allowed airlines to fail,” Lowenstein says. “Typically, carriers who file for bankruptcy are restructured and the physical planes keep flying with little or no interruption to service. The only permanent losers would have been airline CEOs and their investors—who took the risk. But if Congress thinks not letting airlines fail is a good idea, it should set capital requirements in advance (emphasis his) of the next bust.”
History repeating itself
Therein is why I’m so angered by Barra’s $22 billion share repurchases. GM failed in 2008 because of gross mismanagement, poor financial discipline that included share buybacks and generous dividends aimed more at pleasing Wall Street than ensuring long-term stability, and systemic operational inefficiencies. History appears to be repeating itself.
Adding insult to injury given that U.S. taxpayers bailed out the company, GM has been moving more manufacturing jobs to Mexico, and the electric vehicles the company manufactures in that country are eligible for lucrative $7,500 tax credits. As well, GM – ranked the fourth largest corporate moocher from the public trough — continues to sponge off taxpayers.
Shortly before the 2024 presidential election, former Energy Secretary and two-term Michigan governor Jennifer Granholm made a $500 million taxpayer donation to GM to retool a Michigan plant so Barra wouldn’t move more jobs to Mexico.
Assuming GM makes good on its 700-job promise—an optimistic assumption given the company’s history—the taxpayer donation amounts to $714,286 per job.
Naked emperors
Given I’m in a minority railing about stock buybacks and luminaries like Warren Buffett hail them, I confess to wondering if perhaps I just don’t understand high finance. That said, I also wonder if maybe I’m like the little boy in the 1837 fable “The Emperor’s New Clothes, where a vain emperor is tricked into wearing invisible “clothes” and no one dares admit he’s naked—until a child shouts the obvious truth: “But he has nothing on!”
Regardless, Warren Buffett appears to share my dim view of GM and its prospects. Berkshire Hathaway was once a major owner of GM stock but divested all its holdings in 2023. The company also was an early investor in China’s BYD and still has a stake in that company.
Despite having a market value of more than $1 trillion, BYD spent just $55.6 million on stock buybacks in 2024. The company prefers to invest heavily in research and development—sometimes exceeding its annual profits. In 2023, BYD allocated $5.6 billion to R&D while reporting only $4.2 billion in net profit.
In contrast, GM CEO Mary Barra received $28 million in compensation in 2023, roughly 30 times more than BYD founder and CEO Wang Chuanfu’s $913,400.
