Stock Buybacks

8:59 AM  Pisstol Aer   Labels: ,
For those that may view buybacks as a signal that a stock is undervalued, here is some food for thought.

From the article:
Bank of America, for example, bought back $19.4 billion worth of stock when its shares traded between about $40 and $55, then sold more than $13 billion at around $11 a share. Heckuva job! Citigroup happily repurchased $16.1 billion of its own shares during the bubble, then sold about one-third of itself to taxpayers when it was nearing penny-stock territory. Well done, guys!

Some investors claim the current market mustn't be cheap, because companies haven't been quick to gobble up their own shares. That may be true. But if the last several years are any indication, it may be the ultimate contrarian indicator, too.

Obviously, those buyback decisions materially hurt shareholder returns. The article focused on banks but this error in capital allocation doesn't just impact the banking industry. Companies across a variety of industries made this mistake.

Unfortunately, wise capital allocation is not something that can be taken as a given when you own a stock.

Adam
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Stock Buybacks
Stock Buybacks
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