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Why You Should Short Companies Doing Share Buybacks

Sajal

Speaking of Korea, do you know how an average investor can find out more about and invest in South Korean stocks? I don't have access to much more than Yahoo/Google Finance. I've been wanting to maybe invest in Korea but info has been real tough to find. I don't want to buy the ETF bc those companies don't seem too appealing

Why You Should Short Companies Doing Share Buybacks

I would like to see more of management that sells stock when they think it overvalued, and buy it back when they think it undervalued, and to stick to this consistently.

I think, with the tech stocks, maybe buybacks have had little effect because they were overvalued before the buyback, now they are slightly less overvalued after the buyback.

If management is consistent, I fail to see how buybacks aren't an excellent use of capital to retire undervalued stock. Take the retailers right now, for example. You have a lot of retailers selling at 10X or less. Assuming no earnings growth and capital expenditures inline w depreciation, I'd rather management take that 10% cash yield and buyback stock, not pay dividends. Example:

Market Cap = 1B, FCF = 100M. If they pay that as a straight dividend, that's 10% a year.

W buybacks, first year, 10% of the co is cut off; 2d year; 100/900=11% of the co is cut off; by the fifth year, the same amount of money is reducing shares outstanding 20%, etc. There is a nice compounding effect that you get with buybacks that you do not get with dividends. The market has to respond to this eventually.

As to value being "relative" if your hypothetical co has a P/E of 2 that is just not sustainable assuming normal interest rates because it is a so much more attractive investment than any other investments; the price has to go up. I don't know where and under what circumstances you have seen companies regularly trade at 2X earnings?