Buybacks

  • 26 May
    Corporate America’s Focus Isn’t On Shareholder Value Creation

    Corporate America’s Focus Isn’t On Shareholder Value Creation

    • Earnings haven’t grown in the last 10 years. What is corporate management doing?
    • A temporarily higher stock price isn’t good for the majority of investors, especially those investing for the long term and retirement.
    • Buybacks are idiotic, management pays $ 3million for a home they can build for $1 million.
    • There is only one company that does smart buybacks.

    Introduction

    There’s a huge problem affecting corporate America that nobody is seeing because most people think in positives and negatives, and can’t think on an relative scale. What do I mean by this? Well, when shareholders judge management, they look at whether the bottom line is positive and in line with what the competition is doing. Nobody is assessing whether it could have been much better.

    We expect only the best from our favorite athletes and we hope our children develop to their full potential but when it comes to corporate management, we remain mostly silent and accept whatever they throw at us. More →

  • 09 May
    Investment Research: The Challenge of Finding Attractive Investments

    Investment Research: The Challenge of Finding Attractive Investments

    • Bargains can be found through book value, special situations, 52 week lows, merger arbitrages, bankruptcies, etc.
    • It’s necessary to be a contrarian to be a value investor, though it might be painful for a while.
    • With experience, it will take less and less time to assess a stock and whether it has the potential to be a good investment.

    Introduction

    Last week we discussed Klarman’s view on the best business valuation methods. You can find the article here. Today we’ll discuss his approach to investment research.

    Studying fairly priced securities won’t get you far because you’re competing with thousands of others who have researched those companies and, especially in the current market environment, if there is anything worth owning, it will probably be expensive. Therefore, to find bargain investments, an investor has to look where others aren’t looking or refuse to look. More →

  • 05 May
    The Market Is Dumb And Getting Dumber

    The Market Is Dumb And Getting Dumber

    • The number of analysts is declining, stocks don’t react to earnings nor news anymore, and the underlying economic environment is rigged.
    • However, as investors, we have to always look at risk and reward as there is always a way to profit.
    • Protecting yourself from market ignorance doesn’t even cost much.

    Introduction

    I would define a dumb investor as one who doesn’t think about risk in relation to reward, and therefore I fearlessly say: the majority of investors are behaving in a pretty dumb way.

    This is a heavy statement, especially considering markets have performed nothing short of spectacularly in the last 8 years. As evidence, the S&P 500 is up three-fold since 2009 and continues to strongly march ahead. More →

  • 29 Dec
    Is Your Value Being Destroyed? Sven Tells You How To Spot It

    Is Your Value Being Destroyed? Sven Tells You How To Spot It

    • Buybacks and dividends continuously exceed earnings creating a financialized corporate environment and leaving less money for innovation and investments.
    • Such a situation isn’t sustainable in the long term.
    • We’ll close with an example of somebody willing to spend $21.5 billion of shareholders’ money to increase his salary by a few million.

    Introduction

    The end of each quarter is an excellent time to analyze what’s going on with buybacks and dividends. FactSet’s comprehensive analysis of quarterly buybacks and dividends for the S&P 500 is a great place to start.

    It’s of extreme importance to know what it is that management is doing with your money and if they are increasing or decreasing shareholder value. Today, we’ll analyze the situation and give you a few hints to enable you to easily analyze if the managers of the stocks you own add or subtract value with dividends and buybacks. More →

  • 25 Oct
    The First Two Weeks Of Earnings Season Are In. Warnings Ahead.

    The First Two Weeks Of Earnings Season Are In. Warnings Ahead.

    • Don’t be fooled by earnings growth in financials and utilities. The underlying risks are growing too.
    • Lower margins are the first indications of a recession being around the corner. Global government and monetary stimulus make it impossible to know if one will be coming sooner or later.
    • Without buybacks earnings would be terrible.

    The Earnings

    The first two weeks of earnings season have passed and, according to FACTSET, the combined earnings released so far are better than expected but still negative. 23% of the companies in the S&P 500 have reported earnings and their aggregate earnings decline for Q3 2016 is -0.3%. More →

  • 29 Sep
    What Do Investments, Yields & Buybacks Tell Us?

    What Do Investments, Yields & Buybacks Tell Us?

    • The 10-year and 2-year treasury yield spread is getting smaller.
    • Investments peaked last year.
    • The market is standing on legs of hope coming from positive expectations. What are you standing on?

    Introduction

    We will take a look at yields, investments, buybacks and valuations, and look for trends that might trigger a bear market. More →

  • 05 Sep
    Do Your Future Returns A Favor

    Do Your Future Returns A Favor

    • S&P 500 companies are not only returning more cash to shareholders than their earnings, but also more than their cash flows.
    • The trend is resembling the one prior to the financial crisis.
    • Not all stocks are unsustainable with their cash returns, so check your portfolio.

    Introduction

    A common piece of financial advice is not to spend more than you earn as it will eventually put you in trouble. Well, this is exactly what corporate managers are doing. Through dividends and buybacks they are spending more than they are earning. If the common advice is of any value it should be trouble ahead for the stocks that are doing so.

    In this article we are going to analyze the situation, look at the real short and long term risks and conclude in fashion. More →

  • 27 Apr
    The Buyback Conundrum

    The Buyback Conundrum

    • Buybacks should increase shareholder value, but that’s not always the case.
    • From a book value perspective most companies are destroying value.
    • From a return on investment perspective the logic behind buybacks is open for discussion.

    Introduction

    The goal of investing is to enjoy stock price appreciation and dividends, but there is another method for achieving interesting returns: buybacks. With stock buybacks, a company buys its own stocks on the open market. As a public company cannot fully own itself, the purchased stocks lower the number of outstanding stocks and increase the relative ownership of the remaining stockholders. In other words, the company is using its cash to invest in itself. More →