There’s something called the availability bias, where people use the examples that are most easily called to mind in order to make an argument or justify something they want to believe. In finance, the recency bias often swamps the discussion about stock buybacks. People can easily call to mind the “destructive” use of capital on buybacks during the 2000’s decade that Cisco or Microsoft employed. There is a legitimate criticism that they were buying back stock with one hand while issuing more stock for executive compensation with the other hand.
But buybacks are neither inherently bad, nor are they inherently good. They are a tool in the toolbox that company management can use to enhance shareholder value if there are no better options. Some of the greatest stocks throughout history employed large buybacks, in lieu of dividends or instead of making disastrous acquisitions. You can read about these companies in Thorndike’s The Outsiders, which I wrote about here.
Michael did a post about Apple’s just announced, massive $100 billion buyback. People seem to get angry when they hear about things like this, but they are perfectly fine with dividends. We discuss in the video below. Be sure to subscribe to our YouTube channel so you never miss an update!