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Buybacks Set To Break All-Time Record In 2024
Buybacks: Say what you will, but don't look a gift horse in the mouth.
Although everyone with even a passing interest in markets is (or at least should be) apprised, it always bears mentioning that the single-largest source of demand for US equities is corporates themselves.
We tend to wave that away as common knowledge, and it is, but it's somewhat remarkable all the same. Again: The biggest buyer of stakes in corporate America is corporate America itself.
There's a lot wrong with that, but
We tend to wave that away as common knowledge, and it is, but it’s somewhat remarkable all the same.
Agreed. Furthermore, when a corporation buys a share, unlike when I buy a share, the share purchased by the corporation actually reduces the remaining number of shares available.
When I used to attempt “fundamental analysis” on a specific company, one of the data points that I looked at was the net effect of corporate decisions with respect to shares.
Share issuances related to compensation less buybacks equals net increase/decrease to outstanding shares. Obviously, buybacks have a more powerful impact on share prices if the overall share count is being reduced, over time.
The Accountant.
This is not very exciting although it does prove what sheep corporate leaders are. However, a deeper thought. Maybe they are lemmings, especially this time? We will know in a few months.
Hear, hear!
Share buybacks are the “buy high” side of buy high-sell low. Buybacks peaked in 2000, 2007, 2015, 2018, 2022 – perfectly marking SP500 tops (okay, barely for 2022). That is money that would have been better paid as dividends to shareholders, who could decide whether to buy high or be smart, or retained in the case of cyclical companies.
But “better” is in the eye of the beholder, and for the CEO whose compensation is tied to share price, supporting said share price looks better – in the short term. So they make up the absurd line that buybacks are “returning cash to shareholders”, as if shareholders aren’t giving up more in equity holdings – explicitly and in stock comp dilution – than they are getting in cash.
Don’t get me wrong, I like under-the-radar companies that are quietly going private by buying back a big pct of its grossly undervalued stock every year. But that is not the buybacks we are seeing soar to top-marking heights.
It would be interesting to chart buybacks with insider sales.
I think that each time a company buys back shares, within 6 months before/after that act, C-suite executives should be barred from selling more than a nominal pct of their own shares.
Yep. It’s a self-serving mechanism. That Smithers guy in the Uk (via the FT occasionally) really laid this out well years ago.
But invested cheerleaders all happily accept the narrative that our current system aligns the interests of executives of shareholders, which may be right. For example, no one complains about Apple’s stagnant revenue and profit growth thanks to buybacks. (Which may well be their best use of cashflow as opposed to buying Disney or something.)
You may question the impact on using funds to buy back shares at record highs rather than invest in their business on the company’s longer-term outlook and the long-term outlook of the US, but who really cares about that?? Do I hear crickets?