Stock buy backs are also good. It gives money back to investors who then reinvest diversifying the economy and capitalizing new ideas.
Yes, one should look at the recent Apple stock buy back. Which was followed by Warren Buffet’s huge stock purchase. He is taking a long position in Apple precisely because Apple has determined that they cannot put their capital in anything more valuable their own company (at this time). Buffet has already gained on his investment but guess what?
This capital is not gone. Apple can still support internal investments with the value of the company’s equity. People need to realize that the money did not go anywhere, investors have more value and they can spend on new investments and so can Apple. I think of it as investing in a new bathroom in your home. The money seems to be gone, but you have a nicer bathroom, and — the money is still there. When you sell the home you get it back. This is why it is so wrong to criticize a company for buying their own stock. It just means they have nothing better to invest in at the moment and don’t want to leave the money in cash. (Which probably earns a very small interest.)
Stock buybacks are just a way to weight the books. Companies can “raise” earnings-per-share even when real earnings are down. The capital is not invested; it is removed from the table.
Just a few years ago, buybacks were illegal because they are too-often used to manipulate stock prices at the expense of small investors. It’s indicative of the short-term mindset that now permeates our culture. The Esau generation doesn’t believe in long-term, sustainable returns; they want their pottage now.
Nah...it’s just companies giving their evil shareholders and rent seekers an unfair and totally undeserved chunk of the profits, denying the proletariat of what they are due.
I’ve never seen a study on this, but I would like to: do stock buy backs assist in a subsequent equity capital raise during the next growth cycle?
Stock buy backs are ultimately about capital/profit allocation, and should only be undertaken when no other more profitable alternatives are available. Ie, buy at or near a recent low. Too many companies hear Buffett utter the phrase and think geez we gotta do a buy back.
In my opinion, it’s most often a sign of “caretaker” management, more concerned about not screwing up than growing the business. Businesses today are run by people with way too much formal education and not enough on the ground experience spotting opportunities.
Just my opinion.