Buffett attacks buyback strategy as 'foolish' Legendary investor Warren Buffett has attacked the strategy of companies buying back their own shares,

Warren Buffett thinks most buybacks do not create value
Speaking at Berkshire Hathaway's annual meeting in Omaha, Nebraska, Mr Buffett said: "Most of the repurchasing in recent years was foolish." He added that companies invariably paid too much.
Mr Buffett said that only once in the last decade had he considered buying back Berkshire stock as its shares were trading "demonstrably lower than intrinsic value".
However, he stressed: "I don't think that situation exists now."
Many companies that bought back shares over the last two years are licking their wounds, particularly in the financial sector.
RBS launched a £1bn share buyback in 2006, paying an average of £18.38 for the shares, which now stand at just 44p. In January 2008, Lehman Brothers unveiled plans to buy back 19pc of its equity – just nine months before the investment bank went bust.
When a company has spare cash on its balance sheet that it does not need to invest in its business, it can use share buybacks to boost its earnings per share – in expectation that it receives a higher stock market rating.
Mr Buffett is not alone in having doubts over the practice. The UK Shareholders' Association (UKSA) has also argued that buybacks are often contrary to shareholders' interests, especially
private investors. UKSA prefers the dividend route as a way of returning cash.
Buybacks have also come under criticism because they are regarded as a way to improve management benefits under share option or other remuneration schemes that relate to an improvement in earnings per share.
Mr Buffett also dismissed the US government's stress tests on bank balance sheets.
"I think I know their future, frankly, better than somebody that comes in to take a look," Mr Buffett said. "They may be using more of a checklist-type approach." He said he had applied his own stress test to Wells Fargo and it had passed with flying colours.
When Mr Buffett retires his role will be split, with his son Howard becoming chairman and a new chief executive appointed from within the group. However, he said all the internal candidates failed to beat the S&P 500 in 2008.
Following the biggest annual drop in profits since Mr Buffett began running the company in 1965, Berkshire Hathaway will report its first-quarter results on Friday. Mr Buffett said that operating profits would fall by around 10pc year-on-year to $1.7bn (£1.1bn). Operating profits do not include the changes in valuation of the company's investments and derivatives.
Book value per share, a key measure of investment companies, will be down another 6pc from the end of 2008, as the value of Berkshire's share investments fell and losses on derivatives contracts mounted. This is added to book value losses of 9.6pc in 2008.
Berkshire Hathaway lost around $7.5bn in the value of its investments and derivatives last year, the majority of which were unrealised. Profits last year slid by 62pc to $3,224 per Class A share.
Berkshire Hathaway shares have fallen from a peak of $147,000 in September 2008 to $92,005 now.