A Different Opinion on Buybacks

BY CARL OLSON

Contrary to the FERF study findings reported in “Survey Says Stocks Show Large Gains in Buybacks” ( JofA, Oct.00, page 23), stock buybacks indicate poor management and an alarming indifference to the shareholders’ interests.

It’s hard to believe that a stock buyback, which entails paying out millions or billions of dollars from the corporate treasury to selected shareholders, could possibly cause subsequent increased profitability, growth or stock price. It puts the cart before the horse.

A stock buyback is management’s confession that it has no profitable internal asset investment program for the existing “excess” cash inflow. Unfortunately, instead of distributing the excess cash to all shareholders in cash or liquidating dividends, all the money goes to a very few. Adding insult to injury to the remaining 95%-plus of the shareholders, the management—instead of buying up the maximum number of shares possible at low bargain prices—directs its buyback toward the top of the market to boost the price and thus ends up acquiring the fewest shares. I believe shareholders deserve a reversal of priorities from these companies.

Carl Olson
Fund for Stockowners Rights
Woodland Hills, California

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