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Buyback mania isn't necessarily good for shareholders. Paying too much for share buybacks is as bad as paying too much for anything else.* And, empirically, buy

Buyback mania isn't necessarily good for shareholders. Paying too much for share buybacks is as bad as paying too much for anything else.* And, empirically, buyback mania tends to be strongest when share prices are high. By contrast in early 2009, when the US stock market was a great deal, buybacks were rare. To be fair, though, overpriced buybacks do benefit investors who have warrants or options. ----------------------------- *Unless you happen to get lucky and time the market. Very few people can do that repeatably.

forgetsusername 11y ago
>And, empirically, buyback mania tends to be strongest when share prices are high Stock prices are high because profits are high and hence companies have lots of cash with few places to invest. https://research.stlouisfed.org/fred2/series/CP https://research.stlouisfed.org/fred2/series/CP
- mcnamaratw 11y ago
  "Stock prices are high because profits are high" -- Stock prices are high compared to profits, is the point. Look at the P/E ratio of the S&P 500 over time & compare to today's 24:1. http://www.multpl.com/ http://www.multpl.com/ In which years was the trailing P/E of the S&P 500 higher than 24?
  - forgetsusername 11y ago
    Quite a few. Going back to 1990 it looks average-to-slightly-high. Not sure what your point is; if you try to use P/E as a predictive metric, you're going to have a bad time. Maybe there are people out there who have a higher rate of expected earnings growth than you do, and are will to pay more for it in a period of unprecedented low interest rates?
    - mcnamaratw 11y ago
      I was hoping the high-trailing-PE years when things looked fine (1991, 2001, 2008) might ring a bell for some readers. Those weren't favorable economic times. People who invest in stocks should probably have some inkling of what my point is after looking at that chart and thinking about what those years were like. Of course this may be a new era, and stock prices may have reached a permanently high plateau.
autokad 11y ago
i happen to despise stock buybacks. if the company cant think of anything left in the world to invest in, i'd much rather have it as a one time dividend - even if less tax advantaged.
- mcnamaratw 11y ago
  I tend to agree right now. In the past when stocks have traded at 24 times earnings, it hasn't ended well. But when shares are cheap, you're missing out if they don't do a buyback. Late 2008/early 2009 was an easy time to make good buyback purchases.

forgetsusername 11y ago

>And, empirically, buyback mania tends to be strongest when share prices are high Stock prices are high because profits are high and hence companies have lots of cash with few places to invest. https://research.stlouisfed.org/fred2/series/CP https://research.stlouisfed.org/fred2/series/CP

mcnamaratw 11y ago
"Stock prices are high because profits are high" -- Stock prices are high compared to profits, is the point. Look at the P/E ratio of the S&P 500 over time & compare to today's 24:1. http://www.multpl.com/ http://www.multpl.com/ In which years was the trailing P/E of the S&P 500 higher than 24?
- forgetsusername 11y ago
  Quite a few. Going back to 1990 it looks average-to-slightly-high. Not sure what your point is; if you try to use P/E as a predictive metric, you're going to have a bad time. Maybe there are people out there who have a higher rate of expected earnings growth than you do, and are will to pay more for it in a period of unprecedented low interest rates?
  - mcnamaratw 11y ago
    I was hoping the high-trailing-PE years when things looked fine (1991, 2001, 2008) might ring a bell for some readers. Those weren't favorable economic times. People who invest in stocks should probably have some inkling of what my point is after looking at that chart and thinking about what those years were like. Of course this may be a new era, and stock prices may have reached a permanently high plateau.

autokad 11y ago

i happen to despise stock buybacks. if the company cant think of anything left in the world to invest in, i'd much rather have it as a one time dividend - even if less tax advantaged.

mcnamaratw 11y ago
I tend to agree right now. In the past when stocks have traded at 24 times earnings, it hasn't ended well. But when shares are cheap, you're missing out if they don't do a buyback. Late 2008/early 2009 was an easy time to make good buyback purchases.