Under what conditions does Warren Buffett consider stock buybacks sensible, and when does he consider them foolish?

Warren Buffett's Views on Stock Repurchases

Warren Buffett has repeatedly emphasized in his shareholder letters that the wisdom of stock repurchases depends on the relationship between a company’s stock price and its intrinsic value. Below are his core perspectives:

When Are Stock Repurchases Wise?

• When the stock price is significantly below intrinsic value: Repurchases are equivalent to buying company shares at a discount, increasing the per-share value for remaining shareholders. Buffett views this as an efficient capital allocation strategy, especially when the company lacks better investment opportunities. It resembles investors acquiring quality assets at low prices, enhancing long-term shareholder returns.
• Prerequisites: The company must have sufficient cash reserves without compromising operations or future growth; management must accurately assess intrinsic value to avoid overestimation.

When Are Stock Repurchases Foolish?

• When the stock price equals or exceeds intrinsic value: Repurchases amount to buying back shares at inflated or fair prices, destroying shareholder value as the company essentially engages in "buying high and selling low." Buffett criticizes many management teams for repurchasing at high prices merely to boost stock prices or meet short-term incentives, rather than genuinely serving shareholder interests.
• Other unwise scenarios: Repurchases become imprudent if they increase debt, impair liquidity, or manipulate earnings per share (EPS) while neglecting long-term value. Buffett stresses that repurchases should be grounded in value investing principles, not market sentiment or short-term pressures.