WARNING: As the channel grows (thank you all for that), there are more and more scammers impersonating me. The only thing I am selling is my Research Platform and Book sven-carlin-research-platform.teachable.com/p/stock-market-research-platform All that I do, the real links to my content are in the description of the video, I don't give out my Whatsapp number and I don't sell any Cryptocurrency related things! BE CAREFUL OUT THERE!
My biggest concern with buybacks is that many companies purchase shares to offset the dilution impact of stock based compensation for management vs reducing the overall share count. IMO this is why firms continue to buyback stock when it is overvalued.
Dear Sven. I am really appreciated for all your videos but specifically this one. Usually, BUYBACK is welcomed by retail investors like me without paying attention the cons. You are great teacher. All the best and thanks again:)
I recently sold a stock on what I thought was a high point; it was fluctuating between 45 and 55 three times over the last 6 months...figure I'd sell at 55 and buy back in at ~ 45! two days after I sold, the company announced a buyback...the stock is now at 58! Nothing else about the business has changed, very stable profits, generally not volatile ( except in the last 6 months!)... too bad for me, but it showed the power of buy backs! In general I prefer dividends not buy backs; would rather have the money in my pocket to reinvest, not in 'unrealised gains' on paper...but my stocks are in untaxed accounts so no dividend taxes. nice summary of the pros and cons!
Thank you for this great lesson on buybacks. I have a much better understanding of how they can affect not only stock prices but underlying book value. Now I understand why Howard Schultz of Starbucks wanted to stop the buybacks!
Sven, I really found your point about SEC Rule 10B-18 very interesting...thanks for sharing. Stock manipulation is now no longer called stock manipulation. 🎓
Great video Sven! Love it! Buybacks for me is when management is saying we don’t have a better place to invest our cash flow.. then better buy company shares than doing a dumb acquisition. But in a sense buybacks shortens the economic cycle of the business by bringing per share returns forward.. but in the long run we have to recalculate ROE without the buybacks and thus we can get to the “real” intrinsic business return. For example without buybacks a business will do 10% return on investment over 20 years. With buybacks the business will do +20% in the first 10 years and -10% in the next 10 years when funds dry up. But if our intention is to own the business for the long run, buybacks doesn’t change anything.. it’s all about the business fundamentals that underlines the financials and set our return expectation in relation to risk taken
I remeber in some video you talked about teaching in a dutch university. I wonder at which unitversity what subject you teach within which program? Kind regards, a dutch student.
Great video as usual Sven, but while watching i was thinking "how about a video on Equity itself?" Nobody ever tells how it is properly calculated, what are things that affect it, etc... I think that a lot of people doesn't understand this very well, me included probably! Grazie e buon fine settimana! 👍
and, it is not really for free - I get something from YT that is donated but some people also like my research which is premium, so that is the game:-) Hopefully win win win for all
Love the video. I as a dividend investor like buybacks just as i like my dividends😊 one of my favorit companies. BTI is signifficantly undervalued. They buy back shares now at a big discount. Very stabile buiseniss. And more juicy dividends for me. Have been doing perfect on this position.
Great dip dive analysis on Buybacks concept, Sven. Many thanks. An advantage of dividend is that you can use it to buy other stocks as well. In terms of tax, we can declare up to 15% of the dividend tax in our Annual tax return which is full amount of paid tax in most cases. In the case, you dont want to invest in other businesses, healthy buyback would be better, i think.
With higher interest rates (and possibly lower FCF due to harder economic environment) I'm wondering if buybacks will decrease (as a %) since they won't met the hurdle rate of the WACC most of the time, but then again, stocks will be cheaper than they are now on a DCF basis. A self reinforcing tool to the upside when things were going good, a self reinforcing tool to the downside when things will be harder? What do you think, Sven?
Yes, the approach most managers have is asinine as would Munger say, but that is how it is :-( Buybacks seem the smartest things to do when they have the money, the stock goes up and nobody complains. When the opposite happens, nobody discusses past buybacks as that is in the past and nothing can be done!
Sven, Your analysis are first class... that said i would love for you to upgrade you microphone, because the sound is very poor and it is hard on the ears!!!! sometimes.... thanks
Thank you so much for this video Sven! It will help me out a lot with a stock that I'm doing research on. It's a Japanese company that owns ~65% of their market cap in net cash, combined with an EV/5 yr avg. Earnings ratio of 2. It was clear to me that the company is selling for very cheap, so the most important factor for me was if they would provide shareholder value. To my big surprise they have bought back roughly 10% of shares in the last 9 months. My question is, would you agree that it seems that the company checks both criteria for a good share buyback? They have 50 years worth of CapEx in net cash so they will without a doubt be able to run the business with their current funds and the company seems undervalued. Thanks again!
Hello Sven ! Greetings from NY ! Regarding your question about dividends vs buybacks ... I like both but I prefer a good business do buy backs because in some ways dividends are tax defficient .. meaning it was taxed and now taxed again to me the investor. So I prefer to have a larger ownership of my investment 👍🏽
It doesn’t matter to destroy de equity by the buybacks, because it’s just because of the accounting of the buybacks in the balance sheet that has a negative sign. What really matters is the equity adjusted by buybacks or the retained earnings. McDonalds has had negative equity for a long time and everything was ok.
Sven, what are your thoughts on Capital Leases? How do they differ from long term debt? Are they in effect hidden debt? I see a lot of larger US companies declaring them on the balance sheet since 2019. Maybe you could do a video on the subject?
Great job, Sven. Very detailed analysis. I will have a look at some of the detailed papers on this subject like is available on yardeni. Like many things "investing", it may not be what it first appeared.
Thank you Sven, great presentation. Investors often argue that buyback is a sign that shares are undervalued. For a complex business ( finance with heavy derivatives book, very advanced technology, etc), this seems plausible. But in the case of businesses where the basic mechanics are straightforward and widely followed, is it really possible that the global community of investors ( especially “smart money”) could really have missed something about the intrinsic value of the biz? So, is it really credible that management of large cap cos in our day really EVER knows that much more about the future earnings power than the world? In which case, shouldn’t we be skeptical of the real motives behind MOST buybacks?
Really well made video Sven!A question not related: How do you understand whether the fundamental thesis that made you invest in a company is really changed or is just a temporary hiccup? After how many bad reported earnings?How much to do you wait before selling and move on? Thank you
Do the companies really like to buy more shares when the price is high? Or is it actually more money spent on buybacks only because the price is high? When analyzing a particular company, would be more interesting to see quantity of shares repurchased, right?
they have the money when things are good, and they are paid to expect good things forever! When things change, they don;t have the money to do the smart thing.
I would love getting paid a certain amount of dividend rather than buybacks. And I am happy to pay tax on that. Dividends make an investment more certain and easy to comprehend. But again, market will probably price it more accurately thus leaving a lesser profit in terms of appreciation. But I will be happy receiving a check at the end of the day
Trouble with share repurchasing schemes is that after they finish there is nothing to stop the company then issuing out more shares of itself. A sustainable and growing dividend in a solid currency from a solid company is probably a better bet for investors in the long run.
So apple, microsoft, alphabet cant find investment that yield more than 4%, so they use most of their free cash flow to buy back shares. just blowing more air in to the bubble, good short term, bad long term. I like buysbacks when companies are cheap and have high free cashflow yield. Thank you for making these videoes!
I prefer dividends as they are not taxed any different than capital gains (we pay a low tax for the whole value of our accounts four times a year) where I’m from. If the valuation for a particular company gets too high during a period of time because of market sentiment I don't want them to spend that money on buying back expensive shares when I can use the money to buy something cheaper/better value at that point in time.
I believe it is in the interest of the company to keep the money within the company thus buybacks. I prefer dividends because it also gives me the freedom of choice.
I don't mind paying tax on the dividend. If the particular company didn't pay a dividend, the share price would go up at a higher rate and you would end up paying more capital gains tax when you eventually sell the stock.
Someone mentioned that in the future you can maybe decide as an stock owner do you want dividends or buybacks with the money. Have you heard anything about it and do you think it is relistic to happen?
I think the Biggest Pro is the Tax deferment. however, I don't know if it fundamentally changes the company value. if my company does a $1M buy back, at first I have a company that has a million dollars, after the company does the buy back I have more of a company but it also has less money. I feel that most companies do share buy backs when their shares are expensive. best time for share buybacks are when the stock is crashing.
Thats why buybacks should happen when the shares are undervalued. If a management is able to buy $2 million worth of stock for $1 million market value, then the cash on the balance sheet was allocated pretty well.
Hey Sven quick question, I read about inflation also effecting buybacks: If apple only has X$ to spend on CAPEX, and Y$ would remain on the Balance sheet and inflation is at current levels... Wouldn't it be smart to spend that money on buybacks even when your stock is quite pricy? Because your real return on that buyback should still be better compared to the simple loss in value of cash on balance?
Ciao Sven, If 1$ invested equals 5$ in the stock market does that mean if Alibaba repurchases shares for 25billion on a market cap of 231billion that this alone should push the stock around 50% higher? Or do i understand this wrong?
Sven, when you say $1 of buybacks increases market cap by $5, what's the time frame for that? Is it on that day, week month, year or forever? Eventually the company's market cap will be some reflection of its cash flows. But I can see how in the short term buybacks could increase market cap x 5. I'm just wondering how long that effect lasts - until the company stops or slows the rate of the buybacks?
No way to know. For stocks with low volume it can spike even more because there is so little volume. Some small caps with less then $100 of volume can spike 50% from $100 worth of stock purchases. So it the buy volume is high compared to the supply volume, it can spike the price like crazy. In the long term, prices will match intrinsic value though
Love the video Sven! One of your best! Great explanation of the risks and rewards. I am mostly a dividend focused investor as I like the "cash flow" then I can decide what part of my portfolio gets expanded. If the insiders or management are buying shares at the same time as having the company buy them then I think its great. Let's see management have skin in the game. I'm curios now though, does the compensation shares they get show up as insider buying? or only as selling if they convert? Thanks for your education Sven.
@@Value-Investing thank you so much. I do watch insider buying activity and my research tool does tell me what prices they paid. I have 1 company that is doing a share buyback right now and the CEO and others are buying a lot of shares at the current level. I was thinking of following them as i have some money ready to deploy and add to one of my positions. Thanks for the answer.
From the logical point of view, buybacks are always good for you: - Is the stock undervalued? They help to close the gap to fair value. - Is it overvalued? Why are you invested then!? Therefore, for individual investors, buybacks are always good. it is the economy that suffers from lousy buyback management.
Excellent video, Sven! When 25% of the buybacks benefit management, it is questionable whether most buybacks actually help investors in the long term. I would rather be a buy-and-hold investor and buy lower priced shares when I invest my money.
But Sven, there could be a valid reason for management to stop buybacks during economic downturn. Even if stock price craters, the priority there should be survival of the business. Managements also probably look at their WACC as their hurdle rate for buybacks. Maybe due to low interest rates, WACC of the companies are at historical low as well?
Does anyone know how share buybacks affect ADRs? Is the holding Bank obligated to reduce the number of ADRs on the market when the underlying company announces a buyback? Thanks in advance, I can't find the answer to this anywhere.
You mentioned Apple and Starbucks. Sleep Number also has negative equity now and spends more on share repurchases than is their annual cashflow. I take that that is a red flag than?
Maybe it is not true that buybacks do not benefit the economy. Just like dividends, buybacks is a way to distribute wealth from the corporate to the investor level. Investors then can reinvest the money into new ideas which improves allocation of resources - buffett reinvests the money into BNSF and Transmission which leads to economic growth. Sequoia for example can reinvest money distributed from more mature companies into the next gen tech companies which leads to economic growth as well.
If the money used for buybacks is bigger than the free cash flow does that means that they are acquiring debt to buyback shares or using it’s achieved cash through the time? Isn’t that worse than not doing buybacks?
Boeing and IBM are the worst buy back offenders. Boeing was more interested in financial engineering than flying planes. IBM has spent more on buybacks than it's market cap, while it's return has gone nowhere for 20 years.
Isn't it true that when buying back stock companies are spending their cash to buy other peoples/companies stocks? If that is the case don't they now get money to create new businesses or invest in new ventures? Also, stockholders will have the opportunity to sell their shares at a higher price and do the same. But with my first stated fact doesn't it make it so that it is actually net positive to the overall economy rather than the option of companies keep stocking cash?
good point, but there is a big difference between the money getting into people's hand and their savings compared to a company investing and creating jobs directly.
I literally dreamt last night that I was talking you into researching the benefits of Bitcoin hahaha. Wishful dreaming..? 🤞 Jokes aside I hope you at least know about the technology !
If the firm cannot find enough profitable investment opportunities that will generate a return higher than the required return on it's equity, then it makes sense to repurchase shares. If not, the company is just destroying value for its shareholders by leaving the cash idle within the firm or investing in subpar projects.
If I consider any stock I'm holding to be so expensive that buybacks aren't beneficial then I should probably sell it. Why am I still holding it in the first place?
give me my dividends any day. most of my money is in non taxable accounts anyway🤝. I remember Facebook bought back billions at $350'ish for what? 🤦♂️😂
Managers in a company using leverage for buybacks must be corporate equivalent of me using small account to make high leverage trades in forex market. For over 90% of people its a terrible idea
Thank you so much for this Sven! I don't hate share buybacks until, just as you stated, they start doing it at a price where they're yielding terrible FCF. Before then, I could at least justify that the company is undervalued and if I were the owner then I would do it to also protect my company from potential takeovers. The negative book value part really helps clears things up! It's definitely not the way I'd do it if I were running my own business. It's really sad that the culture of American CEOs are a lot more aggressive about repurchases and not taking into account of any Black Swan events that they could face when they get into the negative book values... "Buybacks should be done when it is below book value" - CEO's logic, if we make the book value go into the negatives then we, technically, are buying back shares below the book value. ( ͡° ͜ʖ ͡°) I think that ROIC should be a better metric used, compared to ROE in cases like these. Companies should hire you, Sven, to consult with them on all of this! They'd be better asset allocators if they did so, and then they would finally be creating shareholder values (even though I'd prefer them to prioritise the customers' / business' needs first).
@@Value-Investing Haha, I cannot answer that, but I'm guessing that you are happy with what you're doing currently. You are truly a great man, sir. Thank you for everything! :)
"3.79*27=102 USD or 6.09*27=164 USD" this is wrong assumption as you can not know what would be valuation if all of those buyback wouldn't happen. But for sure buybacks increase share price - you just can't put it like this.
WARNING: As the channel grows (thank you all for that), there are more and more scammers impersonating me. The only thing I am selling is my Research Platform and Book sven-carlin-research-platform.teachable.com/p/stock-market-research-platform
All that I do, the real links to my content are in the description of the video, I don't give out my Whatsapp number and I don't sell any Cryptocurrency related things! BE CAREFUL OUT THERE!
My biggest concern with buybacks is that many companies purchase shares to offset the dilution impact of stock based compensation for management vs reducing the overall share count. IMO this is why firms continue to buyback stock when it is overvalued.
yes, about 25% of the buybacks are just to compensate for issuing shares to management
Dear Sven. I am really appreciated for all your videos but specifically this one. Usually, BUYBACK is welcomed by retail investors like me without paying attention the cons. You are great teacher. All the best and thanks again:)
thanks!!!
Fantastic video Sven! Thank you very much for the deep and detailed explanation 👍 more topics like this please
thanks!
2:40 on my understanding, a share is a debt. So, buybacks is like a payoff/overpayment - reduce debt/increase the capital.
yes, but the price of debt is fixed, the price of the stock is variable :-)))
No, because the principal always stays the same, only the number of holders changes.
I recently sold a stock on what I thought was a high point; it was fluctuating between 45 and 55 three times over the last 6 months...figure I'd sell at 55 and buy back in at ~ 45! two days after I sold, the company announced a buyback...the stock is now at 58! Nothing else about the business has changed, very stable profits, generally not volatile ( except in the last 6 months!)... too bad for me, but it showed the power of buy backs! In general I prefer dividends not buy backs; would rather have the money in my pocket to reinvest, not in 'unrealised gains' on paper...but my stocks are in untaxed accounts so no dividend taxes.
nice summary of the pros and cons!
thanks for sharing, interesting situation
amazing effort and presentation Sven, as always! So valuable to your loyal community
thanks!
Thank you for this great lesson on buybacks. I have a much better understanding of how they can affect not only stock prices but underlying book value. Now I understand why Howard Schultz of Starbucks wanted to stop the buybacks!
Great to hear!
I had no idea that Howard Schultz wanted to stop buybacks! Thanks for the info!
Another amazing video. Thank you Sven! This channel offers unreal value and quality.
Glad you think so!
Gran bella lezione druze Sven , qua' devo impegnarmi anche la domenica... grazie per il servizio
meglio ke scoltar la radiolina, Inter Milan, ahhhhhhh, sempre stesso!!!
Sven, I really found your point about SEC Rule 10B-18 very interesting...thanks for sharing. Stock manipulation is now no longer called stock manipulation. 🎓
that is how it works!
Thanks for sharing this information Sven.
thanks for commenting
Great video Sven! Love it! Buybacks for me is when management is saying we don’t have a better place to invest our cash flow.. then better buy company shares than doing a dumb acquisition. But in a sense buybacks shortens the economic cycle of the business by bringing per share returns forward.. but in the long run we have to recalculate ROE without the buybacks and thus we can get to the “real” intrinsic business return. For example without buybacks a business will do 10% return on investment over 20 years. With buybacks the business will do +20% in the first 10 years and -10% in the next 10 years when funds dry up. But if our intention is to own the business for the long run, buybacks doesn’t change anything.. it’s all about the business fundamentals that underlines the financials and set our return expectation in relation to risk taken
good point!
Always love a video. Thank you Sven!
Thank you Linus!
I have never learn so much in a 30 minute period. Thank you very much sir
So nice of you
Agreed. Content is getting better and better.
I remeber in some video you talked about teaching in a dutch university. I wonder at which unitversity what subject you teach within which program? Kind regards, a dutch student.
dat was bij de Hogeschool Van Amsterdam - Finance And Accounting at AMSIB, also at AMFI :-) Was nice :-)
Great video as usual Sven, but while watching i was thinking "how about a video on Equity itself?" Nobody ever tells how it is properly calculated, what are things that affect it, etc... I think that a lot of people doesn't understand this very well, me included probably! Grazie e buon fine settimana! 👍
it is on the balance sheet :-) but then again many things go into it- you would need a balance sheet video:-) Good suggestion!!!
@@Value-Investing I agree! Balance sheet video needed!
@@Value-Investing yes, please🤑
excellent value video, I never thought there is cons for buybacks, except when the price is expensive
great to hear!
Every investor and manager should watch this video.. thanks Sven:)
Hope so!
Sometimes I am shocked you give this valuable information for free, thank you Sven
I just love educating and helping people:-)
and, it is not really for free - I get something from YT that is donated but some people also like my research which is premium, so that is the game:-) Hopefully win win win for all
Nice video. Good presentation of when buybacks are good for the company (and shareholders) and when they are not.
thank you!
Great Insights and discussion, as always! Thanks for helping us navigate the current Wall Street world!
thanks
Great video. I wasn't aware of many of the CONS of buybacks.
Thanks for watching!
Love the video. I as a dividend investor like buybacks just as i like my dividends😊 one of my favorit companies. BTI is signifficantly undervalued. They buy back shares now at a big discount. Very stabile buiseniss. And more juicy dividends for me. Have been doing perfect on this position.
Thanks for sharing!
Very interesting and crystal clear!!
thanks!
Excellent video
Thank you very much!
Very interesting. Thanks Sven
Glad you enjoyed it
Thanks for looking at buy-backs, Sven. Perfect timing and, as always, great value!
My pleasure!
Excellent explanation. This video is being saved. Thank you, Sven!
Thanks, happy to hear that!!!
good video buybacks can be usefull done it properway but can also destroy value
yep!
Great dip dive analysis on Buybacks concept, Sven. Many thanks. An advantage of dividend is that you can use it to buy other stocks as well. In terms of tax, we can declare up to 15% of the dividend tax in our Annual tax return which is full amount of paid tax in most cases. In the case, you dont want to invest in other businesses, healthy buyback would be better, i think.
it always depends on the price!
With higher interest rates (and possibly lower FCF due to harder economic environment) I'm wondering if buybacks will decrease (as a %) since they won't met the hurdle rate of the WACC most of the time, but then again, stocks will be cheaper than they are now on a DCF basis.
A self reinforcing tool to the upside when things were going good, a self reinforcing tool to the downside when things will be harder? What do you think, Sven?
Yes, the approach most managers have is asinine as would Munger say, but that is how it is :-( Buybacks seem the smartest things to do when they have the money, the stock goes up and nobody complains. When the opposite happens, nobody discusses past buybacks as that is in the past and nothing can be done!
I have to say Sven for this video what I'm enjoying the most is the questions in the comments and your answers
:-))))
Excellent info explained
Glad you liked it
Sven, Your analysis are first class...
that said i would love for you to upgrade you microphone, because the sound is very poor and it is hard on the ears!!!! sometimes....
thanks
thanks for the feedback!
Thank you so much for this video Sven! It will help me out a lot with a stock that I'm doing research on. It's a Japanese company that owns ~65% of their market cap in net cash, combined with an EV/5 yr avg. Earnings ratio of 2. It was clear to me that the company is selling for very cheap, so the most important factor for me was if they would provide shareholder value. To my big surprise they have bought back roughly 10% of shares in the last 9 months.
My question is, would you agree that it seems that the company checks both criteria for a good share buyback? They have 50 years worth of CapEx in net cash so they will without a doubt be able to run the business with their current funds and the company seems undervalued.
Thanks again!
I can't know without knowing the company well.
@@Value-Investing Fair enough, thanks anyways!!
Thank you so much for a video on this topic...
So nice of you
Really good content as always. Thank you Sven “Repurchased“ the like button =)
thank you!
Buybacks are good if the stock price is below the value of future cash flows at a discount rate similar to ROIC... Simple as that!
Also can be good when the business cannot find opportunities with good returns to invest in so decides to invest in themselves through buybacks
Well said, at the end it all depends whether the company will keep making cash flows - that is also the key issue!
Great content. Many tks
thanks
Hello Sven ! Greetings from NY !
Regarding your question about dividends vs buybacks ... I like both but I prefer a good business do buy backs because in some ways dividends are tax defficient .. meaning it was taxed and now taxed again to me the investor. So I prefer to have a larger ownership of my investment 👍🏽
Thanks for sharing!
It doesn’t matter to destroy de equity by the buybacks, because it’s just because of the accounting of the buybacks in the balance sheet that has a negative sign. What really matters is the equity adjusted by buybacks or the retained earnings. McDonalds has had negative equity for a long time and everything was ok.
as said, it implies business stability forever:-)
Sven, what are your thoughts on Capital Leases? How do they differ from long term debt? Are they in effect hidden debt? I see a lot of larger US companies declaring them on the balance sheet since 2019. Maybe you could do a video on the subject?
don't know them :-(
Caught up now. Very busy video. Perhaps could have been divided into multiple different videos? As always, appreciate your content!
you can watch it multiple times ;_)
Great job, Sven. Very detailed analysis. I will have a look at some of the detailed papers on this subject like is available on yardeni.
Like many things "investing", it may not be what it first appeared.
Glad it was helpful!
Thank you Sven, great presentation. Investors often argue that buyback is a sign that shares are undervalued. For a complex business ( finance with heavy derivatives book, very advanced technology, etc), this seems plausible. But in the case of businesses where the basic mechanics are straightforward and widely followed, is it really possible that the global community of investors ( especially “smart money”) could really have missed something about the intrinsic value of the biz? So, is it really credible that management of large cap cos in our day really EVER knows that much more about the future earnings power than the world? In which case, shouldn’t we be skeptical of the real motives behind MOST buybacks?
management is paid to go around as say the business is undervalued, always :-)
Awesome video!
Glad you enjoyed it
Really well made video Sven!A question not related: How do you understand whether the fundamental thesis that made you invest in a company is really changed or is just a temporary hiccup? After how many bad reported earnings?How much to do you wait before selling and move on? Thank you
that is a good question, but the key is whether the business is still growing and what you focus in earnings! Depends on the business.
Do the companies really like to buy more shares when the price is high? Or is it actually more money spent on buybacks only because the price is high? When analyzing a particular company, would be more interesting to see quantity of shares repurchased, right?
they have the money when things are good, and they are paid to expect good things forever! When things change, they don;t have the money to do the smart thing.
Thank You 👍
thank you!
I would love getting paid a certain amount of dividend rather than buybacks. And I am happy to pay tax on that. Dividends make an investment more certain and easy to comprehend. But again, market will probably price it more accurately thus leaving a lesser profit in terms of appreciation. But I will be happy receiving a check at the end of the day
thanks for sharing!
Trouble with share repurchasing schemes is that after they finish there is nothing to stop the company then issuing out more shares of itself. A sustainable and growing dividend in a solid currency from a solid company is probably a better bet for investors in the long run.
when problems come, a business will borrow or issue shares - buybacks imply there will always be profits
So apple, microsoft, alphabet cant find investment that yield more than 4%, so they use most of their free cash flow to buy back shares. just blowing more air in to the bubble, good short term, bad long term. I like buysbacks when companies are cheap and have high free cashflow yield. Thank you for making these videoes!
that is how it is!
Great video as usual but e.g. Lynch said that it is quite impossible to precisely time the market, didn't he?
it is not about timing the market, it is about knowing what investing is.
Buybacks > dividends. However here is Australia we have dividend franking (tax) credits so it’s okay
thanks for sharing! Buybacks vs. dividends depend on the price
I prefer dividends as they are not taxed any different than capital gains (we pay a low tax for the whole value of our accounts four times a year) where I’m from. If the valuation for a particular company gets too high during a period of time because of market sentiment I don't want them to spend that money on buying back expensive shares when I can use the money to buy something cheaper/better value at that point in time.
thanks for sharing!!!
95% of my investments are tax sheltered so I like dividends but depends on the company and obviously I like buy backs if their stock is cheap.
great video
Thanks!
I believe it is in the interest of the company to keep the money within the company thus buybacks. I prefer dividends because it also gives me the freedom of choice.
the money is not kept within the company, the money goes to the market!
I don't mind paying tax on the dividend. If the particular company didn't pay a dividend, the share price would go up at a higher rate and you would end up paying more capital gains tax when you eventually sell the stock.
thanks for sharing!
35:10 thanks for this video. Good lecturer
thanks for the comments and the support!!!
Someone mentioned that in the future you can maybe decide as an stock owner do you want dividends or buybacks with the money. Have you heard anything about it and do you think it is relistic to happen?
that is difficult because the buybacks benefits are split to the whole company, the dividends individually
This is honestly one of the reasons I have not bought any Apple stock! The buybacks at this price doesn't make sense to me.
thanks for sharing!
I think the Biggest Pro is the Tax deferment. however, I don't know if it fundamentally changes the company value. if my company does a $1M buy back, at first I have a company that has a million dollars, after the company does the buy back I have more of a company but it also has less money. I feel that most companies do share buy backs when their shares are expensive. best time for share buybacks are when the stock is crashing.
thanks for sharing!
Thats why buybacks should happen when the shares are undervalued. If a management is able to buy $2 million worth of stock for $1 million market value, then the cash on the balance sheet was allocated pretty well.
Hey Sven quick question,
I read about inflation also effecting buybacks:
If apple only has X$ to spend on CAPEX, and Y$ would remain on the Balance sheet and inflation is at current levels...
Wouldn't it be smart to spend that money on buybacks even when your stock is quite pricy? Because your real return on that buyback should still be better compared to the simple loss in value of cash on balance?
it always depends on how much you pay for those buybacks
Ciao Sven,
If 1$ invested equals 5$ in the stock market does that mean if Alibaba repurchases shares for 25billion on a market cap of 231billion that this alone should push the stock around 50% higher?
Or do i understand this wrong?
if they do that, that is very possible!
But here’s the problem with stock buybacks
when your company is loaded with “ debt “
the buy backs do not work very well >
there is a tipping point there, yes
Profits can also be used to pay off debt.
of course
5:26 I think General Electric is an example were the share value was destroyed because buybacks - this con you are mentioning. Right?
I would say It’s constant diworseification destroyed it, just my observation though 🤷🏻♂️
yes, I say how the management forced buybacks in place of investing and solving problems :-)
Sven, when you say $1 of buybacks increases market cap by $5, what's the time frame for that? Is it on that day, week month, year or forever? Eventually the company's market cap will be some reflection of its cash flows. But I can see how in the short term buybacks could increase market cap x 5. I'm just wondering how long that effect lasts - until the company stops or slows the rate of the buybacks?
No way to know. For stocks with low volume it can spike even more because there is so little volume. Some small caps with less then $100 of volume can spike 50% from $100 worth of stock purchases.
So it the buy volume is high compared to the supply volume, it can spike the price like crazy. In the long term, prices will match intrinsic value though
Love the video Sven! One of your best! Great explanation of the risks and rewards. I am mostly a dividend focused investor as I like the "cash flow" then I can decide what part of my portfolio gets expanded. If the insiders or management are buying shares at the same time as having the company buy them then I think its great. Let's see management have skin in the game. I'm curios now though, does the compensation shares they get show up as insider buying? or only as selling if they convert? Thanks for your education Sven.
insider buying at a price of 0, or whatever the option vest
@@Value-Investing thank you so much. I do watch insider buying activity and my research tool does tell me what prices they paid. I have 1 company that is doing a share buyback right now and the CEO and others are buying a lot of shares at the current level. I was thinking of following them as i have some money ready to deploy and add to one of my positions. Thanks for the answer.
Great value. Sven best for edufintainment
thanks!!! Appreciate it!
From the logical point of view, buybacks are always good for you:
- Is the stock undervalued? They help to close the gap to fair value.
- Is it overvalued? Why are you invested then!?
Therefore, for individual investors, buybacks are always good. it is the economy that suffers from lousy buyback management.
that is good!
Excellent video, Sven! When 25% of the buybacks benefit management, it is questionable whether most buybacks actually help investors in the long term. I would rather be a buy-and-hold investor and buy lower priced shares when I invest my money.
Haha! Why are you invested then?! Love it-but all I gotta say is -money is overvalued, why do we use it anyway? There is always a reason.
@@kelleyhaldorson209 share buybacks are giving management an easy way to take excessive compensation at the expense of shareholders.
@@stuartneill2454 Have to agree. It's one of the main reasons I do not own any apple shares as I don't think these prices are good buy indicators.
what website can one find shares outstanding charts for stocks?
macrotrends
But Sven, there could be a valid reason for management to stop buybacks during economic downturn. Even if stock price craters, the priority there should be survival of the business.
Managements also probably look at their WACC as their hurdle rate for buybacks. Maybe due to low interest rates, WACC of the companies are at historical low as well?
Exactly, as Charlie Munger says: WACC is “perfectly amazing mental malfunction.”
Yahoo, My like was # 700 !! 🎊🎉
great to hear!!!!!
Thank you, Sven. Would you please suggest what mic (and a model#) you use because it produces a good sound? Do you have a link to where to buy it?
Seinheizer
Haha, how was that, “making monnneeeeyyyyyy” :)
a hebiga, mogu reci i pppaaarrrrreeeeeeeeeeeeeee
Does anyone know how share buybacks affect ADRs? Is the holding Bank obligated to reduce the number of ADRs on the market when the underlying company announces a buyback? Thanks in advance, I can't find the answer to this anywhere.
ADRs represent shares, if buybacks are made on domicile markets the number of shares outstanding is lower - so it doesn't matter where those are made
You mentioned Apple and Starbucks. Sleep Number also has negative equity now and spends more on share repurchases than is their annual cashflow. I take that that is a red flag than?
depends on future cash flows :-)
Have you compared Stock Based Compensation to buybacks to check the net effect? Bet it varies greatly by sector
haven't looked by sector
Maybe it is not true that buybacks do not benefit the economy. Just like dividends, buybacks is a way to distribute wealth from the corporate to the investor level. Investors then can reinvest the money into new ideas which improves allocation of resources - buffett reinvests the money into BNSF and Transmission which leads to economic growth. Sequoia for example can reinvest money distributed from more mature companies into the next gen tech companies which leads to economic growth as well.
yes, but there is a difference between direct and maybe :-))
If the money used for buybacks is bigger than the free cash flow does that means that they are acquiring debt to buyback shares or using it’s achieved cash through the time? Isn’t that worse than not doing buybacks?
yes, but it also depends on how much room do they have with their capital structure!
Boeing and IBM are the worst buy back offenders. Boeing was more interested in financial engineering than flying planes. IBM has spent more on buybacks than it's market cap, while it's return has gone nowhere for 20 years.
that is correct - keep in mind Apple also spent more than its 2013 market cap, but the business grew too...
Isn't it true that when buying back stock companies are spending their cash to buy other peoples/companies stocks? If that is the case don't they now get money to create new businesses or invest in new ventures? Also, stockholders will have the opportunity to sell their shares at a higher price and do the same. But with my first stated fact doesn't it make it so that it is actually net positive to the overall economy rather than the option of companies keep stocking cash?
good point, but there is a big difference between the money getting into people's hand and their savings compared to a company investing and creating jobs directly.
I literally dreamt last night that I was talking you into researching the benefits of Bitcoin hahaha.
Wishful dreaming..? 🤞
Jokes aside I hope you at least know about the technology !
hahahahahaha
If the firm cannot find enough profitable investment opportunities that will generate a return higher than the required return on it's equity, then it makes sense to repurchase shares. If not, the company is just destroying value for its shareholders by leaving the cash idle within the firm or investing in subpar projects.
depends on the price of the shares! It can pay a dividend :-)))
If I consider any stock I'm holding to be so expensive that buybacks aren't beneficial then I should probably sell it. Why am I still holding it in the first place?
that is the simple rule :-)))
It is an amazing rule, but it's only simple in theory. The "Endowment effect" is a very real thing for most people.
give me my dividends any day. most of my money is in non taxable accounts anyway🤝. I remember Facebook bought back billions at $350'ish for what? 🤦♂️😂
thanks for sharing - non taxable accounts are also key!
Managers in a company using leverage for buybacks must be corporate equivalent of me using small account to make high leverage trades in forex market. For over 90% of people its a terrible idea
thanks for sharing
take a shot each time he says "buybacks"
have fun :-))))
Buybacks all the way, please... ;p Taxation is theft. Yes, libertarian here... Thank you.
thanks for sharing
Thank you so much for this Sven! I don't hate share buybacks until, just as you stated, they start doing it at a price where they're yielding terrible FCF. Before then, I could at least justify that the company is undervalued and if I were the owner then I would do it to also protect my company from potential takeovers.
The negative book value part really helps clears things up! It's definitely not the way I'd do it if I were running my own business. It's really sad that the culture of American CEOs are a lot more aggressive about repurchases and not taking into account of any Black Swan events that they could face when they get into the negative book values...
"Buybacks should be done when it is below book value" - CEO's logic, if we make the book value go into the negatives then we, technically, are buying back shares below the book value. ( ͡° ͜ʖ ͡°)
I think that ROIC should be a better metric used, compared to ROE in cases like these.
Companies should hire you, Sven, to consult with them on all of this! They'd be better asset allocators if they did so, and then they would finally be creating shareholder values (even though I'd prefer them to prioritise the customers' / business' needs first).
haha, why would I want to work for companies? Plus, if they wanted to hear this, they have it for free here on UA-cam :-)))
@@Value-Investing Haha, I cannot answer that, but I'm guessing that you are happy with what you're doing currently. You are truly a great man, sir. Thank you for everything! :)
"what he left behind was a mess.....but he got his $200 million"
...ahh....yea......that's the life!
yep!
goat
:-)
21:01 Netflix could be an example?
I don't know about Netflix and their buyback strategy
“Making moneeeeeeey!” 😆
:-)))
"3.79*27=102 USD or 6.09*27=164 USD" this is wrong assumption as you can not know what would be valuation if all of those buyback wouldn't happen. But for sure buybacks increase share price - you just can't put it like this.
Thanks for sharing, i feel im pretty correct!
23:00 Aviva? 🤔
I don't know what Aviva did
Hi sven! Can i buy your asos report?
send me an email
@@Value-Investing 👍👍
1:55 Hey Sven, I obliterated the like button and in doing so, broke my phone’s screen. Will you BUY me an iPhone BACK? :-)
hahahahahahaha, Apple will do it for sure!!!