{"id":19670,"date":"2025-08-20T12:22:40","date_gmt":"2025-08-20T12:22:40","guid":{"rendered":"https:\/\/finderica.com\/?p=19670"},"modified":"2025-08-20T12:22:40","modified_gmt":"2025-08-20T12:22:40","slug":"are-record-stock-buybacks-a-good-thing-for-investors","status":"publish","type":"post","link":"https:\/\/finderica.com\/?p=19670","title":{"rendered":"Are Record Stock Buybacks a Good Thing for Investors?"},"content":{"rendered":"
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In 2025, U.S. companies are expected to buy back $1.1 trillion worth of stock. (That\u2019s equal to the size of the entire economy of Turkey, the 18th-largest in the world.) Companies have already announced $984 billion worth of buyback authorizations. Both are record numbers.<\/p>\n

By the end of 2025, companies are expected to have announced over $1.3 trillion in buybacks.<\/p>\n

\"Chart:<\/a><\/p>\n

This is happening at a time when markets are at all-time highs and price-to-earnings, or P\/E, ratios are very extended. In fact, the market\u2019s P\/E ratio is the highest it\u2019s been except for during market anomalies like the COVID pandemic, the global financial crisis, and the dot-com bubble.<\/p>\n

\"Chart:<\/a><\/p>\n

I don\u2019t believe that the P\/E ratio is the definitive measure of a market\u2019s valuation or its likely direction. But it\u2019s a useful indicator of how frothy a market is, and it doesn\u2019t make sense for companies to be snapping up shares at these prices just because they have the money.<\/p>\n

Instead, they should buy back shares when markets tank, but they almost never do.<\/p>\n

I have three main arguments against buybacks.<\/p>\n

1. Let me<\/em> decide what to do with the extra cash.<\/strong><\/p>\n

Buybacks are considered a method of returning cash to shareholders. If a company has cash that it wants to return to shareholders, then I want to decide whether the stock is a good value. I don\u2019t trust a CEO who may be incentivized to manipulate the numbers in order to boost earnings per share.<\/p>\n

Here\u2019s what I mean.<\/p>\n

Let\u2019s say a company earns $100 million and has 100 million shares outstanding. That means it earns $1 per share.<\/p>\n

The company buys back 10 million shares.<\/p>\n

The following year, earnings are flat and it again makes $100 million in profit. But now there are only 90 million shares, so earnings per share are now $1.11 \u2013 showing 11% growth even though the company didn\u2019t make any more money.<\/p>\n

2. Companies buy back shares at the wrong time.<\/strong><\/p>\n

In my book Get Rich with Dividends<\/a><\/em>, I cite a study by Azi Ben-Rephael, Jacob Oded, and Avi Wohl that was published in Review of Finance<\/em> that found that small companies often buy back shares at depressed levels, but large companies do not, because they\u2019re \u201cmore interested in the disbursement of free cash.\u201d<\/p>\n

In other words, management teams of large companies are more concerned with showing the public that they\u2019re doing something with the excess cash rather than being good stewards of capital.<\/p>\n

3. Management teams are often hypocrites.<\/strong><\/p>\n

Executives are happy to buy back shares at high prices with your money while they\u2019re selling their own shares.<\/p>\n

The three largest announced buybacks this year are from Apple<\/strong> (Nasdaq: AAPL), Alphabet<\/strong> (Nasdaq: GOOG), and JPMorgan Chase<\/strong> (NYSE: JPM).<\/p>\n

There have been no insider buys at Apple in a decade. Meanwhile, on August 8, Apple\u2019s senior vice president of retail and people, Deirdre O\u2019Brien, sold $7.8 million worth of stock. Last year, she sold $23 million worth.<\/p>\n

Chris Kondo, the principal accounting officer, sold $934,000 worth in May \u2013 and that\u2019s on top of the $5 million that he sold last year.<\/p>\n

And this year, CEO Tim Cook has sold more than $24 million worth of stock.<\/p>\n

So Cook and friends are cashing in while using shareholder money to repurchase up to $100 billion in shares.<\/p>\n

Does that pass the smell test?<\/p>\n

Same story at JPMorgan Chase. No insider buying since 2023, but a whole lot of selling, including by CEO Jamie Dimon, who has sold more than $170 million worth of stock this year.<\/p>\n

Yet the company authorized a new $50 billion stock repurchase plan last month.<\/p>\n

You see the pattern.<\/p>\n

Insiders sell for lots of valid reasons. They may be diversifying their portfolios, estate planning, paying for a wedding, etc. But should they be allowed to sell their shares, collecting millions of dollars, while using your money to support the stock?<\/p>\n

If a management team stands by its repurchase decision, how about all the insiders commit to not selling any shares for a year?<\/p>\n

I trust management to run the business. I don\u2019t trust them to make the right decisions with excess cash unless they\u2019re also buying shares themselves.<\/p>\n

When a company has too much cash, it should pay shareholders a special dividend or boost the regular dividend. We are all better off making our own decisions on what to do with the money, rather than having a management team with conflicts of interest make the decision for us.<\/p>\n<\/p><\/div>\n