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When should listed companies buy back shares? Listen to Buffett

Hello, everyone. I'm Xiaodong who says "wealth". Today, let's talk about share buyback.

At the beginning of this month, many A-share listed companies will announce the progress of share buyback, which is also a matter of great concern to shareholders.

Announcement of share repurchase

Generally speaking, shareholders' friends are always happy to see their own company buy back shares. Because, the most direct factor affecting the stock price is the buyer and the seller. It is always a good thing to have one more buyer (that is, a listed company).

When Xiaodong held a stock before, he occasionally flashed an unrealistic idea in his mind: buy back funds to buy stocks up and down, so that I can sell them comfortably. Of course, as a more mature investor, I know that this is definitely wrong.

In fact, it is not always appropriate for listed companies to buy back shares. For example, it is not reasonable to buy back shares when the stock price is overvalued.

Last month, the repurchase announcement issued by Goethe, a listed company of Shenzhen Stock Exchange, caused a lot of controversy. According to the announcement of Goethe, the repurchase amount shall not be less than 500 million yuan (including) and not more than 1 billion yuan (including), and the repurchase price shall not be more than 21 yuan / share.

On the same day, Goethe also announced a reduction announcement, saying that the company's actual controller, chairman Jiang Bin and vice president Liu Chunfa plan to reduce your company's shares by means of centralized bidding and block trading, with a total of 92475585 shares (no more than 92475585 shares), accounting for 2.85% of the company's total share capital.

Shenzhen Stock Exchange also expressed concern about this, and sent a letter to ask 'the company to check and explain whether there is any motivation to cooperate with shareholders to reduce their holdings and exchange debts for shares'.

Ge'er also replied to this later. Interested friends can check to see if the reply is reasonable.

Next, Xiaodong will talk about Buffett's views on Buyback for your reference.

Buffett believes that for shareholders who want to exit, the company's share buyback is certainly very good; but for long-term shareholders, it is only reasonable to buy back when it is lower than the intrinsic value of the stock, so we need to set a buyback maximum price.

What is smart at one price is stupid at another

In addition, in Buffett's view, in some cases, even if the stock price is lower than the intrinsic value of the stock, listed companies should not buy back. For example, the development of a company needs money and is not suitable for borrowing again. Of course, the implied premise is that the company has a promising future. Some M & A transactions or investment opportunities are more cost-effective than buyback.

Xiaodong thinks that Buffett's reasoning is simple and easy to understand. What do you think?