Down markets are to be expected, but this should really piss you off

December 14, 2018

Down markets are to be expected,

but this should really piss you off

I'm talking about stock buybacks. When a company announces one, it's supposed to send a bullish signal that says "holy cow, the company is raking in so much cash that it could afford to spend excess cash on its own stock!"

Turns out some companies are faking it, like the ones that issue debt to buy back their own stock. There are also the ones, other fakers, that send this signal even though they really need to preserve their cash for a rainy day. Then again, all companies need to be ready for a rainy day, right?

The top 20 stock buyback programs in corporate America have spent $1.4 trillion on their own shares since the Great Recession ended. What excess return did shareholders get for this? Not much. 15 of the 20 underperformed the S&P 500. But that's only part of the story. A big percentage of these companies' performance over the last 10 years was horrendous.

I'm not anti-buyback. I just have all the proof that I need to share with you my belief that there are really very few companies that should initiate them and that a lot of companies that did initiate them will find themselves short on cash when the next rainy day arrives.

With the stock market down this year over worries about global growth, it appears that the rainy day may have arrived for some companies that did buybacks. Are they prepared to ride out the storm? It was a privilege to write this article, below, about this for CNBC. There's a lot more to it than just what I wrote above. It gives examples of widely held buyback stocks, shares opinions about buybacks from Jeff Bezos (Amazon) and Jamie Dimon (JP Morgan), tells you something about Apple that you probably didn't know, and will make you a more educated investor.

I send you there now: Investors should be furious: 3 blue-chip stock buybacks that went horribly wrong

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Mitch

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