Thanks for sharing the letter, Chris writes, "" After about a third of profits are sent to index shareholders as dividends, more than 100% of the retained
balance is used repurchasing shares to merely offset the dilution that results from giving 2% of the
average company to insiders each year as options and restricted shares. Share reduction of the index
companies was a modest 0.7% per annum for the past decade. Said differently, companies spent roughly
60% of profits to purchase 2.7% of their market capitalization each year, yet only reduced the share count
by 0.7% annually. Bully. Retained earnings are NOT reinvested at the return on equity. All retained
earnings are spent repurchasing expensive shares. Repurchases made at high prices destroy capital. Shares
bought at 20x earnings yield 5%, and 30x earnings gets you 3.3%. If no profits are left after paying
dividends and repurchasing shares, what funds growth capital expenditures and growth research and
development? Exactly.""

Berkshire Hathaway FAQ

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