Quote:
Originally Posted by sebastian_dangerfield
The management did nothing to improve the business. It engaged in buybacks to jack the stock price. It created a share valuation that wasn't predicated on the underlying fundamentals of the business.
That sort of distortion is why we're going thru a depression and yet the stock market is only 15% off all time highs. Only instead of IBM buying back shit tons of its own stock, now the Fed is doing the purchasing.
Insane.
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If a business is making money, and management doesn't think it makes sense to invest the money in making the business grow, there are three choices: (1) Put it in the bank, (2) Pay a dividend to investors, or (3) Buy stock back.
(1) doesn't earn the company much of anything and doesn't do anything for anyone except the bankers.
(2) and (3) both generate returns to existing shareholders, (2) by giving them cash and (3) by reducing the outstanding stock so that everyone owns a little more. (3) lets shareholders opt out by selling to the company, so in that way features more choice.
I don't think most investors are fooled into thinking that the buyback means there is more demand for the stock. It's a matter of public record. No one is being deceived about anything.
If management has that money and doesn't see a good way to use it to improve the business, giving it back to the shareholders is great. There companies (e.g., rhymes with Oogle) where the founders don't really need to answer to shareholders and can squander the company's money on vanity projects like high-altitude balloons that are never going to make money. Is that a good model?
