Buybacks or Stock Repurchases Explained! 10 Pros & Cons For Your Investing Strategy

or are the essential method organizations return money to shareholders these days. However, it is not all positives and here are 10 pros and or share repurchasing activity. There are good and there are bad buybacks. The secret is that you know when a buyback benefits you and when not.

0:00 Buybacks
1:59 What Are Buybacks
3:10 Buybacks & EPS
4:24 ROI
7:27 Reinvesting
8:00 Dividend Taxes
8:51 Buyback Stats
13:09 Buybacks & Price
14:13 Buffett On Buybacks
17:43 Book Worth
20:58 ROE
21:58 Management Incentives
25:41 Buybacks Work
27:12 Take advantage of
30:15 Buyback Rule
33:05 Intrinsic Value

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Buybacks or Explained! 10 Pros & Cons For Your Investing Strategy

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40 Comments

  1. 2:40 on my understanding, a share is a debt. So, buybacks is like a payoff/overpayment – reduce debt/increase the capital.

    1. yes, but the price of debt is fixed, the price of the stock is variable :-)))

  2. WARNING: As the channel grows (thank you all for that), there are more and more scammers impersonating me. The only thing I am selling is my Research Platform and Book ​​https://sven-carlin-research-platform.teachable.com/p/stock-market-research-platform
    All that I do, the real links to my content are in the description of the video, I don’t give out my Whatsapp number and I don’t sell any Cryptocurrency related things! BE CAREFUL OUT THERE!

  3. I don’t mind paying tax on the dividend. If the particular company didn’t pay a dividend, the share price would go up at a higher rate and you would end up paying more capital gains tax when you eventually sell the stock.

  4. I believe it is in the interest of the company to keep the money within the company thus buybacks. I prefer dividends because it also gives me the freedom of choice.

    1. the money is not kept within the company, the money goes to the market!

  5. Trouble with share repurchasing schemes is that after they finish there is nothing to stop the company then issuing out more shares of itself. A sustainable and growing dividend in a solid currency from a solid company is probably a better bet for investors in the long run.

    1. when problems come, a business will borrow or issue shares – buybacks imply there will always be profits

  6. Great job, Sven. Very detailed analysis. I will have a look at some of the detailed papers on this subject like is available on yardeni.
    Like many things “investing”, it may not be what it first appeared.

  7. With higher interest rates (and possibly lower FCF due to harder economic environment) I’m wondering if buybacks will decrease (as a %) since they won’t met the hurdle rate of the WACC most of the time, but then again, stocks will be cheaper than they are now on a DCF basis.
    A self reinforcing tool to the upside when things were going good, a self reinforcing tool to the downside when things will be harder? What do you think, Sven?

    1. Yes, the approach most managers have is asinine as would Munger say, but that is how it is 🙁 Buybacks seem the smartest things to do when they have the money, the stock goes up and nobody complains. When the opposite happens, nobody discusses past buybacks as that is in the past and nothing can be done!

  8. Maybe the reduced buybacks during downturns is to have the cash to buy undervalued companies that will contribute to the bottom line.

    1. no, that is really something rare then – it is just that they don’t have the money or keep it for the business, not caring about the price being cheap:-) Just Buffett has the money to do acquisitions:-)))

  9. If the firm cannot find enough profitable investment opportunities that will generate a return higher than the required return on it’s equity, then it makes sense to repurchase shares. If not, the company is just destroying value for its shareholders by leaving the cash idle within the firm or investing in subpar projects.

  10. Hello Sven ! Greetings from NY !
    Regarding your question about dividends vs buybacks … I like both but I prefer a good business do buy backs because in some ways dividends are tax defficient .. meaning it was taxed and now taxed again to me the investor. So I prefer to have a larger ownership of my investment 👍🏽

  11. Great video as usual Sven, but while watching i was thinking “how about a video on Equity itself?” Nobody ever tells how it is properly calculated, what are things that affect it, etc… I think that a lot of people doesn’t understand this very well, me included probably! Grazie e buon fine settimana! 👍

    1. it is on the balance sheet 🙂 but then again many things go into it- you would need a balance sheet video:-) Good suggestion!!!

  12. Sven, when you say $1 of buybacks increases market cap by $5, what’s the time frame for that? Is it on that day, week month, year or forever? Eventually the company’s market cap will be some reflection of its cash flows. But I can see how in the short term buybacks could increase market cap x 5. I’m just wondering how long that effect lasts – until the company stops or slows the rate of the buybacks?

    1. No way to know. For stocks with low volume it can spike even more because there is so little volume. Some small caps with less then $100 of volume can spike 50% from $100 worth of stock purchases.

      So it the buy volume is high compared to the supply volume, it can spike the price like crazy. In the long term, prices will match intrinsic value though

  13. Sven, I really found your point about SEC Rule 10B-18 very interesting…thanks for sharing. Stock manipulation is now no longer called stock manipulation. 🎓

  14. From the logical point of view, buybacks are always good for you:
    – Is the stock undervalued? They help to close the gap to fair value.
    – Is it overvalued? Why are you invested then!?
    Therefore, for individual investors, buybacks are always good. it is the economy that suffers from lousy buyback management.

  15. Love the video. I as a dividend investor like buybacks just as i like my dividends😊 one of my favorit companies. BTI is signifficantly undervalued. They buy back shares now at a big discount. Very stabile buiseniss. And more juicy dividends for me. Have been doing perfect on this position.

  16. Thank you for this great lesson on buybacks. I have a much better understanding of how they can affect not only stock prices but underlying book value. Now I understand why Howard Schultz of Starbucks wanted to stop the buybacks!

  17. Nice video. Good presentation of when buybacks are good for the company (and shareholders) and when they are not.

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