03-22-2016, 01:26 PM
(This post was last modified: 03-22-2016, 01:30 PM by Roadmap2Retire.)
Some good discussion, but here are my counter arguments.
* The board & management authorizing the buybacks are not necessarily the sharpest tools in the shed. They are almost always terrible market timers. Companies buy when the stock is expensive and terminate buybacks when the rough times come around. There have been plenty of studies completed and this has been proven time and again - buybacks peaked just before the financial crisis in 2007/2008 and were terminated by most going into 2008/2009 (when they should've been buying). Same goes for the current collapse in energy. Companies like Exxon & Chevron (and countless other O&G companies) were spending cash like no tomorrow on buybacks before 2014. After the oil prices and the share prices crashed -- when the share price was finally cheap -- these companies terminated their buybacks. We tend to forget that behind these companies are humans with emotions just like anyone else and follow the fallacies that most people suffer from.
* If share prices are really reduced, then a case can be made for the buyback program, since the rest of us shareholders get a bigger piece of the pie. But the reality is that a lot of companies dilute regularly in order to pay the employees and management. Case in point, Qualcomm, which has been aggressively buying back their stock over the course of years. But if you look at the sharecount, it hasnt done much. In fact, the number of shares increased in 2011, 2012 and 2013 and barely moved the needle in 2014 -- while the record amount of buybacks were announced & executed. One might argue that without the buybacks, the sharecount would just balloon, but the original justification for the dilution is that the company will keep it under control with buybacks.
* The board & management authorizing the buybacks are not necessarily the sharpest tools in the shed. They are almost always terrible market timers. Companies buy when the stock is expensive and terminate buybacks when the rough times come around. There have been plenty of studies completed and this has been proven time and again - buybacks peaked just before the financial crisis in 2007/2008 and were terminated by most going into 2008/2009 (when they should've been buying). Same goes for the current collapse in energy. Companies like Exxon & Chevron (and countless other O&G companies) were spending cash like no tomorrow on buybacks before 2014. After the oil prices and the share prices crashed -- when the share price was finally cheap -- these companies terminated their buybacks. We tend to forget that behind these companies are humans with emotions just like anyone else and follow the fallacies that most people suffer from.
* If share prices are really reduced, then a case can be made for the buyback program, since the rest of us shareholders get a bigger piece of the pie. But the reality is that a lot of companies dilute regularly in order to pay the employees and management. Case in point, Qualcomm, which has been aggressively buying back their stock over the course of years. But if you look at the sharecount, it hasnt done much. In fact, the number of shares increased in 2011, 2012 and 2013 and barely moved the needle in 2014 -- while the record amount of buybacks were announced & executed. One might argue that without the buybacks, the sharecount would just balloon, but the original justification for the dilution is that the company will keep it under control with buybacks.