By Jack Forehand, CFA (@practicalquant) There might not be a more controversial topic right now in investing than stock buybacks. The debate over buybacks, which started out as a debate over their investment merits, has morphed into a political one that touches many of the controversial topics of our day such as income inequality and whether Wall Street continues to profit at the expense of average Americans. The negative press that buybacks have received has… Read More
There is now hard data to show that the biggest tax break in three decades is being funneled to capital expenditures rather than share buybacks. This according to a recent article in Bloomberg. “Among the 130 companies in the S&P 500 that have reported results in this earnings season, capital spending increased by 39 percent,” the article reports, “the fastest rate in seven years, data compiled by UBS AG show. Meanwhile, returns to shareholders are… Read More
In a recent USA Today article, famed investor Ken Fisher argues against the stance of some politicians that share buybacks should be banned, instead declaring they’re “great—for everyone. When firms repurchase shares, they destroy stock supply. Econ 101 taught us supply and demand move prices. Shrinking supply? Bullish!” Fisher goes on to argue how lower share supply also boosts per-share earnings and that the capital returned to shareholders can then be invested elsewhere. “Buybacks,” he… Read More
The new tax legislation will encourage companies to repatriate much of the cash they now hold outside the U.S., much of which could find its way to stock repurchases, writes Mark Hulbert in a recent Barron’s article. But the expected surge in buybacks, he argues, “isn’t going to extend the bull market’s life longer than it would have lasted otherwise.” Hulbert cites the first research regarding share repurchases (published in the 1990s) which found that… Read More
A periodic look through the archives of the greatest investor in history In Berkshire Hathaway’s 2011 Letter to Shareholders, Warren Buffett offered his thoughts on why he sometimes hopes that his holdings will decline in value, using IBM as an example. Below is an excerpt from the letter.
While many bears have said that a boom in share buybacks has been a drag on growth and a way of masking weak earnings and revenues, top strategist Kenneth Fisher says that’s nonsense.
Spinoffs, share buybacks, stock splits, insider purchases — investors’ ears often perk up at the mention of these corporate moves. But are they really reliable stock indicators? In a recent piece for The Wall Street Journal, Liam Pleven and Joe Light take a look. While a good deal of research shows that companies that engage in these actions can outperform the market, Pleven and Light also advise caution. “Investors can’t know all the considerations and… Read More