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2020/08/12

It's So Easy... It's Like Cheating

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Warren Buffett's About to Get a Lot Richer... and You Can Join Him

Andy SnyderBy Andy Snyder, Founder
 
Liberty
  
 Rooster's Crow
  Later this week, we're filming a critical update on gold. It's a huge topic as fears of inflation begin to rise. But inflation is already here. The prices of key commodities are soaring. Lumber is up 60% in the past six months. And in just the last month... coffee is up 14%. Sugar is up 19%. Cotton is up 10%. And cocoa is up 17%.
  
Warren Buffett has come to the dark side.

If there were ever a way to cheat in stocks, the Oracle has found it... and tapped into it in a way like never before.

He just dumped a record $5.1 billion into this "trick."

We predict it's going to make him a very rich man.

Here's the best part... By tracking just one simple metric, you can join him.

The Only Thing Worth Buying?

We've written about share buybacks a fair amount in these essays. As we told Manward Letter readers when we recommended a buyback stalwart in a recent issue, they're the supercharger that makes a good stock great.

The result of loose monetary policy and a go-nowhere economy, they've become a leading catalyst for rising share prices.

Buffett knows it.

After all, the famed value investor sold more of his positions during the second quarter of this year than at any time over the last decade.

Add it all up and his Berkshire Hathaway (BRK-B) unloaded some $13 billion worth of its holdings.

But there was one stock Buffett was quite interested in... his own.

He directed his firm to buy a record $5.1 billion worth of its own stock.

It's a simple move based on good math. When a company buys its own stock, each share that remains on the market is worth a bigger cut of the profits.

By pulling $5 billion off the market, Buffett put $5 billion into the hands of his shareholders.

The move says a lot about the state of things these days.

It shows Buffett isn't hopeful for any big deals.

It shows the value strategy that made him rich... has lost its mojo.

And it shows that the best way to get share price moving these days is to use a bit of financial magic.
 

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The Market's Best Friend

Like it or not, the strategy works.

Buybacks were a leading - if not the leading - force during the 11-year bull run that started in 2009. In recent years, in fact, corporations have bought far more shares than individual investors.

But like all things these days, math has gotten political.

The rationale for buybacks has stirred some ire. After all, they make folks rich... and some people, for some dumb reason, don't like that.

During the height of the market's crash this year, headline after headline touted the death of buybacks.

Good riddance, they said.

They won't be back for years, one well-touted report said.

It's ethics over economics, the feel-gooders chanted.

Ha.

Tell that to Mr. Market... and Mr. Buffett.

Buybacks are back...

Kimberly-Clark (KMB) just announced a deal to buy back as much as $900 million worth of its stock... this year.

Google's parent company, Alphabet (GOOG) - the gatekeeper of all things ethical - just deemed buybacks okay when it quietly announced it had bought $6.9 billion of its shares during the second quarter. That's nearly double the amount from the same time last year.

Microsoft (MSFT) stuffed $5.8 billion into shareholder pockets.

Biogen (BIIB) bought $2.8 billion worth of its shares.

And Apple (AAPL) takes the top prize... buying back $16 billion worth of its shares in the second quarter alone. It's no wonder its shares are up more than 150% in the last year.

It begs a question...

If you're not using buybacks as a buying indicator, why not?

If you're looking for solid, long-term growth, it should be a leading indicator.

There's only one thing that will change that fact...

Free Money!

Since Franklin Templeton has a new interest in Baltimore (it just bought Legg Mason), we'll let its head of equity explain things.

"As long as you're a company that is earning money greater than your borrowing rate," said Stephen Dover, "you can just keep borrowing and buying back shares."

With that, we'll remind you of what the head of the Fed said in June.

"We're not thinking about raising rates. We're not even thinking about thinking about raising rates."

Indeed... it's a good time to invest in companies investing in themselves.

Clearly, Buffett still knows a good deal when he sees one.

Be well,

Andy

Do you have questions about share buybacks and how they work? Send them to mailbag@manwardpress.com.
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