Are share buybacks really a bad thing?
Markus Muhs - Mar 02, 2021
This is starting to come up again in political discourse. I insist, and will tell you why, share buybacks are objectively a good thing, and Uncle Warren agrees!
"There is no reason for a company to move into the market and buy anonymously thousands of its own shares for any reason other than to raise the price of its own shares," says @ewarren on stock buybacks: pic.twitter.com/jipbjIJge7— Squawk Box (@SquawkCNBC) March 2, 2021
- Repay bank loans or buy back bonds (if applicable)
- Invest in growth of the company (this also can’t be entered into blindly, lest a company malinvest its capital)
- Stockpile cash (perhaps this strengthens the company balance sheet, but it generally is the least effective use of capital in a low-interest environment)
- Initiate or raise dividends to shareholders: often undertaken if none of the above makes sense. From a politically left perspective probably could also be seen as mostly just enriching the shareholder, however, it does lead to additional tax revenues for governments.
- Buy back shares: effectively electing to repay a completely non-obligatory debt to the shareholder.
Read Warren Buffett’s annual letter to Berkshire Hathaway shareholders https://t.co/D82M0QJpvm— CNBC (@CNBC) February 27, 2021
Investment Advisor & Portfolio Manager