No. of Recommendations: 22
Buybacks are interesting to me in that they seem to illicit a lot of negative reactions. Far less reaction to dividends.
I think that just comes from a lot of fuzzy thinking.
Buybacks done at fair value do not increase the value of the remaining shares at all.
A whole lot of people (including many a CEO) can not get their heads around that simple fact.
Depending on the particular way they misunderstand things, they'll react in various illogical ways.
Even Mr Buffett's comment is vague enough to let you believe he doesn't understand it. (I'm sure he does).
Yes, the buybacks have been good for Berkshire...but you have to consider that had they not taken place, it's likely SOMETHING of value would have been done with that money which would also have been good for Berkshire.
Capex, R&D, dividends, acquisitions, dubious lobbying...not always great, but on average positive.
Of course, similar problems exist with dividends.
It's surprising how many people don't realize that a share is worth less after a dividend is paid.
The people who like dividends the most seem to think that all share prices are completely random, so the dividend is a complete "extra" on top of what would have happened otherwise.
They think that adding a 2% dividend would increase their long run returns by 2%/year.
That's just magical thinking, since it would also decrease the value of a share by 2%/year.
Jim
