Buybacks are whatever incorrect with what companies do states Mark Cuban. We take a look at the information showing how he is appropriate and how one need to view who is doing the buybacks and why.
0:00 Buybacks
1:06 Last Decade
4:04 Buybacks Real Worth
5:38 My 3 Problems
7:57 Buybacks Taxes
8:43 Buybacks Statistics
Lost Decade –
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I agree with your points, I think it’s good to look for companies that use buybacks effectively for shareholder return, like during down periods for cyclical companies. Most of the time management does it the wrong way around. But for example BE Semiconductors is doing a 300M (8% of market cap) buyback now during the bust (shares -50%), and they did only about 60M during 2021 (actually even gave out convertible bonds). So it creates value when the management understand the cycle.
thanks for sharing!±
Oh my god! Finally an YouTuber that I follow speaking sense.
:-))
I agree, but what are the alternatives?
Bad money management always leads to loss and if the management is not good at money management, then sell the stock.
The alternatives are not better, when the management doesn’t know what it does, for example:
-when Dividends are paid in good times and a year later in bad times it becomes a capital increase, when the share price is low.
-when the money is lying around unused
-when they make expensive acquisitions
-when other bad investments in new business segments are made
excellent question – the answer is: good management will know what to do, bad management will do buybacks no matter what. And we have just eliminated 90% of the investment opportunities out that – and they say investing is not simpel!
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@Value Investing with Sven Carlin, Ph.D. True, but pressure from shareholders is often enough the reason for bad capital management – it is not usually the management that suggests taking on debt for dividends or buybacks. Bad shareholders are as much a reason to stay away as bad management.
And I thought buybacks were great. Very informative video.
not always! It all depends on the price!
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Buybacks are scary. As I see it, and please correct me if I am wrong, buybacks make the market more volatile (if used ineffective). When a stock goes up, they help it go higher; but when a stock goes down, they make it go even lower because the company loses money on that stock bought at high prices.
I have something new to introduce to you on how to invest and make more profit
Actually, buybacks shouldn’t even push the stock price up. The increase in per-share-value due to the smaller number of shares is exactly balanced by the decrease in net cash / increase in net debt. Same with dividend raise announcements (especially since the dividend is immediately taken off the share price anyway). It is basically greedy buyers that do that.
@Everest314 I get what you are saying but also share buybacks increase demand for the shares, witch pushes the price higher. And the other buyers of the stock also compete to buy the fewer remaining shares. So it lowers supply and amplifies short term demand.
@Catalin Cioponea Demand alone does not move stock prices either (it shouldn’t if everyone was rational), the buyers also need to increase the price they are willing to pay. And even if short-term excess demand does move prices, that should subside after the buyback is through or demand has stabilised as market participants should trade at their original price targets again.
Yes I know, a lot of ifs, theoreticals and rationality assumptions. Reality looks different, but it shouldn’t.
Buybacks are good when done correctly. If the company’s stock is undervalued and they don’t have any better ways to spend the money, then it makes sense to buy back shares. If the stock is over-valued, then dividends are the better option.
The problem is a stock being undervalued or overvalued is in the eyes of the beholder.
@Antares1997 True, but the buy/sell buttons are in the hands of the (share/be)holder as well.
@Everest314 Ok, and the point is?
@Antares1997 The point is, the solution for the “problem” is right there.
Wasn’t meant as disagreement, you are absolutely right. Someone else commented that a buyback is the company “making a decision with my money” or so.
Wow Sven every time you post a video I gain some new knowledge. I appreciate you and I LOVE that you are not out to scam anyone like others who shall not be mentioned. But maybe you guys in the comments help haha
I appreciate that!
Jeremy… LOL
@Yay Del Boom! Meet Kevin and the gang as well..
I have something new to introduce to you on how to invest and make more profit
I like buybacks, but bigger dividend or paying off debt I like even more. When a company does buybacks I feel like they are making a decision with my money that their stock is currently the best deal in the stock market which is usually not the case.
thanks for sharing!
Hi Sven, I recently wrote my master thesis on dividend vs buybacks. Feel free to contact me, happy to discuss this in a call (or via chat)
I think you do touch on some very good points I also investigated
great to hear!
Thank you for your video, very interesting!
I have a special video request: I think it would be a great value for us and our learning to have a China stock market video! I know you cover those stocks on your research platform, but is there a way for you to make a video about investing in China for a value investor without interfering with your research platform?
Thank you Sven!! 🙏🏼🙏🏼
yes, will make one about China, not specific stocks!
You make quality content. I appreciate it!
I appreciate that!
What makes me almost always stop analyzing any company is that they increase debt and return capital to management.. obs. To shareholders, through buybacks.
Buybacks are largely a waste but taxes 100 % waste so one has to balance with lose – lose -situation.
ah!
You often include buyback yield in the expected return from a business when you do your analysis. Based on this data should you not count buybacks as part of the return to shareholders?
depends on the price those are done at!
Great Video.
I have a small cap stock (LAS-A.TO) where they increased their buybacks when the stock price went under the book value… and due to inflation pressures.. they didn’t want to invest back into the business until they found ways to improve efficiencies.
For this, I feel it’s ok for buybacks.
Seems like we should either ban buybacks or give the government the option to tax the crap out of the process until it benefits the economy. Probably better to ban it since the government isn’t the most effective gate keeper.
There was a time when buybacks where banned (iirc in the US but not 100% sure), probably because they were seen as cheating the taxman. However, I don’t see a reason why this should be banned or taxed.
The gains are taxed when they are realised, not to mention that the value of the company does not actually change (the cost for the buybacks reduces the per-share value by as much as the reduced share count increases it).
We can all decide where to invest and nobody is forced to by shares of a company with bad capital management – in the end such companies and their shareholders (who usually need to approve buyback programs and can decide to stay on board or not) hurt themselves in the long run. No need to ban that (if we want to protect people from their own stupidity, I have better suggestions where to start).
Hey Sven, good video thank you for your opinion! I really have to look more how the companies I like trade their own stock 😀 I have one question: Is this value investing when you analize ca. 200 stock but only find 5 stocks to buy? I mean it is okay for me to own only 5 stocks, but it is so demotivating to analize one stock after another for houres and dont even find 1 stock at an interesting price 😀 (Maybe I should just stop searching for more stocks and only stick to my five and do more research on them idk) I mean you do research for living (I think) so you should know the feeling? Have a good day
That is the only way. The only thing you can do is spend as little time as possible on the 195 bad ones. You don’t need to do a full DCF calculation if the company is overburdened by debt, doesn’t work in an industry or have a business model that you find attractive or has such a high valuation that you can already tell it’s way overvalued.
In some companies the attitude about debt is horrifying. I was looking at Yum Brands. In 2016 they released a statement saying that they decided they want to be a 2x leveraged business. Why? Who knows. They did a huge leveraged buyback on debt and have maintained their 2x leverage ratio ever since, even increasing debt this year. Their bonds are junk rated but that does not stop them. How to destroy shareholder value 101. Too bad they have quality brands but they are destroying value through mismanagement anyway.
Sounds very much like Dominos Pizza as well. These companies are better corporate raiders than private equity sharks. 😀
A target leverage ratio is not necessarily bad though, as long as the capital is invested into the business (and return on capital outperforms capital cost) and excess debt beyond the target is paid off before advertising shareholder returns.
From a percentage yield perspective, it makes absolutely no difference whether a company spends X M$ on buybacks or dividends. Yes, if the stock price is high, the buybacks are less “effective”, but the dividend yield goes down just as much.
The “only” reason to prefer dividends over buybacks is if you think you can spend the cash on a better opportunity than the same company’s stock. Or as WB puts it, the company should only pay a dividend if they think the investors have better use for the money than the company itself – he sees that as a bad sign which I don’t necessarily agree with if the stock is overvalued.
That said, I do like it when companies take advantage of undervalued stock prices with buybacks, I tolerate it when they have excess cash and no immediate investment opportunities such as expansions or M&A (yes, there are still some companies that are profitable AND have no debt), but I stay far away from those that do it in excessive amounts at the wrong prices and/or even take on debt to do so – that is like buying an overvalued stock on margin with the intention of holding it for a longer time without deleveraging.
Of course my favourites are the companies that can absorb and sensibly reinvest all their cashflow and have no reason to spend it on dividends nor buybacks … alas, those rarely come at an attractive price for a value investor.
How do we justify the massive buyback program AAPL has carried out since 2015, especially in the last few years when it has pumped 100s of B into buyback when the stock has been overvalued for the most part? What could be their logic? Or AAPLE has no other way to utilize the huge cash it generates? Do we conclude apple’s business is not expanding much in future?
that is the point, 100 billion spend on buybacks is gone forever for a 3% return given the current price. A good investment or idea could bring hundreds of billions per year.
Sven this was one of your best videos and you have many good ones! I prefer dividends and long term hold.
I appreciate that!