prudentinvestor

Where Have All the Buybacks Gone?

You are quite right, and I have posted often on this subject as I believe it does not get the attention it deserves. Buybacks are corrupt. Since the zombie (or ignorant) boards are complicit in this corruption, the way to eliminate it is for the SEC to require public companies to increase the strike price of all outstanding options when a buy back is implemented, by the ratio:

(number of shares outstanding before buyback) / (number of shares outstanding after buyback)

Without this necessary adjustment, buybacks disproportionately benefit management's options at shareholders expense. This leads them to buy back their stock, no matter how high the price, just to make sure their most recent and expensive options can be liquidated at a profit.


On Apr 10 12:44 PM stonebluff wrote:

> Has anyone tackled a study of the damage done by buybacks to American
> financial corporations? I cannot understand the rationale for buybacks
> except when the assets underlying the shares plainly exceed in value
> the price of the shares. Then, and only then, do the shrareholders
> as a group benefit. Buybacks otherwise benefit only EX shareholders,
> who sell into the buyback storm. With buybacks, management is making
> an investment decision with regard to my money; I would prefer to
> invest it myself. Give me cash dividends. I'll invest them where
> I choose. Buybacks carry even a mild odor of corruption, since managers
> with options are commonly large and regular vendors of their companies'
> shares, and buybacks tend to mask the dilution caused by prodigal
> use of options.,

Preview from Europe: All Fools' Day

As usual a great, succinct and witty summary. You state that suspending mark-to-market would allow bankers to "...... run their firms with little or no capital and leverage them to the hilt creating the biggest credit bubble the world has ever known ....".

I was under the impression that this has already come to pass.