icandoitdon

Buybacks: Not All They're Cracked Up to Be

i dont know what "research" you're referring to but i do know this:
one year returns prove absolutely nothing. buying back shares permanently shrinks a firm's capital base and increases leverage. if you think there is no risk to doing this you do not understand finance.

ponder this:

aggregate stock market returns over the last 10 years have been approximately zero. what does this suggest about aggregate share buybacks during this period? it suggests that it has been a singularly foolish waste of one of the most precious resources a company has...its capital. it cannot be issued on a whim and, in some markets....today's for example...it is nearly impossible to raise.

golfbargainhunters is absolutely correct: companies typically buy shares back after a successful run when they're flush with cash...exacxly the wrong time to do it. i can name many companies today...nearly any retailer or financial institution, for example...who would be wise to consider share buybacks given the carnage in their share prices over the last year but they can't do it because they desperately need the capital.

the author is spot on. if they can't reinvest their profits to grow the business let them pay dividends. buybacks are for idiots who don't know any better.



On Jan 06 09:50 PM AJB7 wrote:

> This opinion is not supported by the facts. Research has consistently
> shown that companies with the largest one year reduction in shares
> as a group outperform other stocks, with one recent study showing
> the top quintile earning a positive excess return of 3.1% vs the
> bottom quintile earning a negative excess return of 5.2% over the
> 1991-2007 period.