Not engaging in these ridiculous buybacks in the first place.
I’ve heard a lot of analysts as well as retail investors suggest that share repurchases are nothing more than financial engineering, implying that they do nothing to add value to a company or its stock.
But there's an additional, and I think significant, value of share repurchases and dividend payments that comes from removing unproductive excess cash from the balance sheet. Lets look at Apple, with a $570 billion market cap and about $160 billon of cash and equivalents on the books, net of debt. Therefore, a dollar invested in Apple represents about 78 cents invested in the actual operating business, which is where the profits come from, and about 22 cents invested to buy a bit of that cash pile, earning about 1%. Arguably a less-than-ideal allocation of each invested dollar.
So a smart investor wants that cash removed from the books, which would either reduce the market cap of the company or, if the cash isn't being valued at even 1x its value, which could be argued is the case with Apple, removing that cash would leave the market cap where it is, which would then imply a higher earnings multiple against the productive operating side of the business, while also taking shares off the market, which would increase earnings per share going forward.
And a higher earnings multiple means that as earnings grow in the future, the stock will climb faster. Carl Icahn must have had all of these effects in mind - more efficient allocation of investor's dollars, increase in earnings multiple against operating business, and reduction in shares netting an increase in earnings per remaining share - when he approached Tim Cook years ago. Pity he didn't articulate his case better.
I get the theory, but it isn't working. You can also take cash off the books by paying it out as dividends to shareholders, which is what I think should be done with any excess, which benefits shareholders twice over: firstly as income and secondly by making the stock far more attractive than do buybacks, thus stimulating the share price.
Obviously it's impossible to prove, but I think if Apple had told Icahn to go fly a kite and had spent half as much on increasing dividends as they have on buybacks, the share price would be at least 80% higher than it is.
I am not saying that interest rates being negative is a good thing in the long run, but I should note that you've been crying "the sky is falling, the sky is falling!!!!!" on interest rates for more than a few years now. And to say that Janet Yellen a "dangerous idiot" is an utterly stupid comment. What she actually said -- if you'd read what you linked to -- was that she would not take if off the table if "....the U.S. economy [got] much worse." We're in no danger of something like that except in your wild imagination.
You should bone up on some econ.
I have not crying the sky is falling on interest rates for years. Where are you getting this from?
Not engaging in these ridiculous buybacks in the first place.
...removing that cash would leave the market cap where it is, which would then imply a higher earnings multiple against the productive operating side of the business, while also taking shares off the market, which would increase earnings per share going forward.
Wow. What a wonderful free lunch! Why not just buy up all of it, then?
Couple of additional points you should consider: removing cash does not "...leave the market cap where it is"; if debt is used (as Apple is doing), interest and principal has to be paid on it from pre-tax operating cash flow.
Nice taking my quote out of context. There was an 'if' preceding what you excerpted.
When in 2015? Not the 28 or 29 July 2015, which is how you measure "a year ago" when talking about the stock market. Taking the calendar year high from 2015 and the calendar year low for 2016 is some shady shit.
I didn't say 'a year ago' I specifically said 'last year' Last year was 2015
This isn't shady at all. The fact is its 20% below its all time high in 2015.
And 10% above where it was a month ago. Comparing a single data point that happens to be the all-time high is bad "fact" analysis.
Comments
Obviously it's impossible to prove, but I think if Apple had told Icahn to go fly a kite and had spent half as much on increasing dividends as they have on buybacks, the share price would be at least 80% higher than it is.
Also, it fluctuates, deal with it.