Companies
Buybacks: the good, the lazy and the destructive
A buyback is a capital allocation decision, and most are made badly.
A share buyback is neither virtuous nor sinful on its own. It is a company buying one particular asset, its own shares, and the usual question applies. Was the price sensible?
Three kinds
The good buyback retires shares when they are cheap against the value of the business, concentrating ownership for the people who stay. The lazy buyback runs on autopilot, returning cash because management has run out of better ideas and would rather not say so. The destructive buyback borrows to repurchase shares near a peak, flattering the per-share figures while the balance sheet quietly weakens.
So we watch what a company buys back, and when. A team that repurchases heavily in a panic and not at all in a boom understands value. A team that is eager at the top and absent at the bottom is managing the share price, not the business.
The views above are the firm's own and are provided for information only. They are not investment advice, nor an offer or solicitation to invest. Capital at risk; the value of investments can go down as well as up, and past performance is not a guide to future results.
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