To quote Warren Buffett, the mathematics of share buybacks are not complicated to understand: like any investment, they create value if they are made at attractive valuations, just as they destroy value if they are made at too high valuations.

In the latter case, they are to the detriment of the company and its long-term shareholders, but often to the benefit of the seller - for example, the insiders who sell the large volumes of shares they receive via their stock options - and the investment banks who advise them.

While we may criticize those who abuse the process, we must also congratulate those who make judicious use of it. The example of Canadian insurer Fairfax springs to mind. Chaired by Prem Watsa, an outstanding entrepreneur, the group is structured precisely like Berkshire Hathaway - with a profitable insurance business financing its investment activities.

Over the past six years, Fairfax has reduced its number of outstanding shares by 17%. The delisted shares have been bought back at an average price half the current one, for valuation multiples of between x0.6 and x0.9 the value of shareholders' equity. And equity is profitable every year...

In addition to this intelligent strategy, the insurer's bond portfolio was also managed particularly intelligently: Fairfax massively sold its bonds in the last quarter of 2021, when rates were at 1%, and then massively bought them back last October, when rates were close to 5%.

The Group's shares had been stagnating for six years. These two good moves combined to double its market capitalization in the space of a few weeks.