Subject: Re: Buyback Follies: Welcome To The Machine
Here's a humdinger of a chart

I traced back her source, hoping there might be a spreadsheet behind it (in part, because possibly it might allow creation of an overlap of BRK buybacks). No luck.

But the original source was in the FT earlier this week https://www.ft.com/content/4df... , from which there were two more points of possible interest:

First, the article contained another graph. This graph had two lines: P/B, and "Buybacks as a percent of S&P market 'value'*", 1998-2022. As far as correlation between the two: nothing** evident. (As the article said, "buyback intensity is sometimes high when valuations are moderate ' from 2010 to 2014, for example. That's good! But...also notice buybacks intensity rising in recent years as valuations pick up ...that's not so good!)

The second point of interest in the article was a quote from an email the author had received wrt the (theoretical, non-quantified) impact of buybacks on share price, given a market with a large (~50%) percentage of passive index investors. The whole quote is too long to cut/paste as fair use, but the gist is:

"When a company buys back its shares, its weight in an index*** will fall by the same proportion (although there might be a delay), and so a passive investor has to sell to keep in line with the index

and

"share buybacks create forced selling by passive investors....[who] then complete their rebalance by buying the stocks that have not done buybacks or issued shares, and so lift the prices of the rest of the market. So passive investors create a leakage of the impact of buybacks into the wider market..."

It's an interesting theory, but quantifying it would be of more help in deciding how relevant the effect was.

Executive summary: share buybacks are value-accretive only when done at prices substantially below intrinsic value. Any other repurchases are ultimately destructive, except for personal benefits accruing to management.

Where have we heard this before? (*cough*Mungo *cough*Warren)

--sutton

*presumably the author meant "S&P market cap". I can never go past the word 'value' in the MS financial media without hearing price is what you pay, value is what you get" in my head, and substituting as appropriate. (Kind of like Charlie M statement that every time he reads "EBIDTA", he mentally substitutes "bull***t earnings")

**except each dropped in tandem in the market shocks of 2008 and 2020

***presumably reflected only in a cap-weighted index fund. If we follow Mungo's research to instead invest in equally-weighted fund, then presumably this effect will not be present.