Stock Buybacks - Good or Bad? Are Share Repurchases a Bad Thing for Investors? Stock Buyback Basics

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  • เผยแพร่เมื่อ 8 ส.ค. 2019
  • Companies often buy their shares back from the open market. In this video, we look at why companies like Apple and Walmart purchase outstanding shares of their own stock. In recent years we've seen an increase in stock buybacks (also known as share repurchases) and the question we try to answer in this video is, are buybacks a good thing for investors?
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ความคิดเห็น • 56

  • @LearntoInvest
    @LearntoInvest  4 ปีที่แล้ว +5

    What do you think of stock buybacks? Are they a good thing for investors?

    • @rnegoro1
      @rnegoro1 4 ปีที่แล้ว +2

      No. Dividends are better.

  • @wenjizeng89
    @wenjizeng89 4 ปีที่แล้ว +22

    I am a bigger fan of companies using excess cash to pay down debt and/or pay dividends. Stock buyback is financial engineering that rewards executives in the short run at the cost of a company's longevity.

    • @vvolfflovv
      @vvolfflovv 4 ปีที่แล้ว +7

      outside of a few very rare cases, I couldn't agree more.

    • @rnegoro1
      @rnegoro1 4 ปีที่แล้ว +1

      That's what apple is doing.

    • @enriquerivero4051
      @enriquerivero4051 4 ปีที่แล้ว +2

      I totally agree

  • @PassiveIncomeTom
    @PassiveIncomeTom 4 ปีที่แล้ว +11

    Thanks for going over this and breaking it down Jimmy! 👍

  • @gfrutherford
    @gfrutherford 4 ปีที่แล้ว +5

    Hey Jimmy you are pretty cool. I really enjoy your videos. I have a suspicion that recent increases in buybacks are a sign of two problems: 1) a decline in innovation, else reinvest. 2) a pessimistic view on future earnings, thus a hedge against eps decline, while maintaining shareholder support.

  • @bobwright8000
    @bobwright8000 4 ปีที่แล้ว +5

    You explained this well. Thanks

  • @richardgordon
    @richardgordon 4 ปีที่แล้ว +3

    Thanks Jimmy, I really learned a lot!

  • @MINDucated
    @MINDucated 3 ปีที่แล้ว +1

    Thnx for the great explanation!

  • @Viper4ever05
    @Viper4ever05 4 ปีที่แล้ว +6

    Your channel is better than my old college lectures.

  • @richardcarlin1332
    @richardcarlin1332 4 ปีที่แล้ว +4

    Very accurate. Stock Buybacks excellent is if the company doesn't have outstanding projects to generate more cash. In the future, less dividends will need to be paid, especially if profits drop.

  • @rps7746
    @rps7746 4 ปีที่แล้ว +4

    Thx Jimmy

  • @HustlinHorse
    @HustlinHorse 4 ปีที่แล้ว +2

    Love the content Jimmy! I’ve never looked at buybacks with this kind of analysis before but I definitely will now!

  • @sagig72
    @sagig72 4 ปีที่แล้ว

    Loved this video! great job.

  • @Sprinklesofjoy
    @Sprinklesofjoy 4 ปีที่แล้ว +4

    Also worth mentioning that buybacks take shares out of the market which can help reduce volatility, which is another benefit for shareholders.
    For the company, buybacks today reduce the dividend payment burden tomorrow (as there are less shares outstanding in the market), which gives the company more cash flow to reinvest in the business (or do more buybacks...)

    • @LaidbackLuc9
      @LaidbackLuc9 4 ปีที่แล้ว

      Sprinklesofjoy or increase the dividend of the shares outstanding in coming years!

  • @GenExDividendInvestor
    @GenExDividendInvestor 4 ปีที่แล้ว +16

    I've always preferred giving $ back in the form of dividends, rather than buybacks. Thanks for the vid!

    • @LaidbackLuc9
      @LaidbackLuc9 4 ปีที่แล้ว

      gen.x dividend.investor Agreed, but once off windfalls (outsized profits) or a sudden decrease in shareprice is better served via a buyback than with a dividend. Dividends are not to be cut, they should be covered and predictable, while buybacks can be stopped if the conditions change materially.

  • @zekevfab
    @zekevfab 4 ปีที่แล้ว +2

    Good explanation! School case of bad buyback: BBBY in 2014 when the management decided to borrow $1.5B to perform buybacks right when the stock price was sky high. The CEO has since been fired, hopefully this company will now be better managed.

  • @lachoranchev6039
    @lachoranchev6039 4 ปีที่แล้ว +2

    Great vid!
    Can you make a video on how different ratios affect the price of a stock? (expending on some of the ration you already mentioned in this video - eg debt to equity, earning yield etc)
    Thanks

  • @whynot8758
    @whynot8758 4 ปีที่แล้ว +4

    Great explanation however when the market drops the EPS may drop as well because of economic circumstances. Thanks a lot Jimmy!

  • @quasar.
    @quasar. 3 ปีที่แล้ว +1

    thanks спасибо!

  • @marineastro
    @marineastro 3 ปีที่แล้ว +1

    I don't know how stock buybacks intrinsically increases the stock price. Decreasing shares outstanding increases EPS, assuming earrings didn't change. An increase in EPS, results in a decrease in P/E. Rearranging the P/E formula, price per share is equal to P/E times EPS. It seems to me that the P/E ratio decreases while the EPS increases proportionally equal to the decrease of the P/E.

  • @InvestingEducation
    @InvestingEducation 4 ปีที่แล้ว +4

    Repurchases r great especially if used strategically to buy back beaten down stock. But that is rare. FB last yr was a good example

  • @RockTheCage55
    @RockTheCage55 4 ปีที่แล้ว +3

    I prefer buybacks over dividend but i think in 99% of the cases buybacks should come from FCF and not from issuing debt. What i hate about dividends is when a company needs excess capital for whatever reason and has to suspend dividend increases (or cut) the stock is hammered. Excess debt always makes me nervous.

  • @philippgerstenberger7379
    @philippgerstenberger7379 4 ปีที่แล้ว +5

    Am I correct with this? A company that has 100 shares less after buybacks has also a cash opportunity because they save future dividend payments for these 100 shares as well. Thanks for the content.

    • @LearntoInvest
      @LearntoInvest  4 ปีที่แล้ว +2

      Very true. shares from a buyback don't get dividends, so yes in theory the company could save some cash that way

  • @gauravhegde3298
    @gauravhegde3298 4 ปีที่แล้ว

    New sub here ! Great video ❤️🔥

  • @sep69
    @sep69 4 ปีที่แล้ว +1

    Great video ! Thanks for this clear explanation. Share buybacks seem like financial engineering to me.

    • @LearntoInvest
      @LearntoInvest  4 ปีที่แล้ว

      I think they can certainly be used that way

  • @evaristegalois8600
    @evaristegalois8600 4 ปีที่แล้ว

    It is important to consider if my memories is correct in the us when you can deduce of your taxe 38% of the value of the buyback
    If the buyback is financed by debt

  • @UmTheMuse
    @UmTheMuse 4 ปีที่แล้ว +1

    I find everyone's comments about buybacks to be interesting. I like the idea of buybacks more than dividends because it helps weed out short-term investors. This is basically legal insider trading, right? The company knows when they're doing well and when they're doing poorly. If they're doing well but the stock price hasn't rewarded the investor, it seems to me that they have an opportunity to step in and buy the fence-sitters out, which will help the long-term investor. Hopefully, the board of directors would then be free to make decisions that will benefit the company in the long run.
    It helps that I'm not looking for an income stream when I buy stocks; I'm in it for the long-term, at the moment.

  • @ChaceBonanno
    @ChaceBonanno 4 ปีที่แล้ว +1

    Reinvesting the cash and making acquisitions will probably reward the shareholders more than dividends and buybacks

  • @UmTheMuse
    @UmTheMuse 4 ปีที่แล้ว +2

    This topic had me re-think buying stock on margin. If you're making regular contributions to your portfolio and you have the ability to borrow on margin, you could use the same math to decide whether it makes sense to pay the broker back or to buy more stock, right? Would you consider creating a video on buying on margin, please?

    • @LearntoInvest
      @LearntoInvest  4 ปีที่แล้ว +3

      That's a good video idea, and yes at first glance I think this math could also work in that context. But I'll test it out for the video I do

  • @georgehadley7863
    @georgehadley7863 4 ปีที่แล้ว +2

    Jimmy thanks for the video and congratulations on reaching 25K subscribers. My thoughts are that if a company has excess cash and it doesn't have a better alternative to investing it, then a stock buyback is an appropriate way to use that money. However if the company is borrowing the money to fund the buyback then I believe this is stock price manipulation and should not be allowed. I wonder how much of the $940 billion of stock buybacks in 2019 will be financed by debt?

    • @LearntoInvest
      @LearntoInvest  4 ปีที่แล้ว +2

      I agree 100%. I'll dig a bit and see if I can find how much is financed by debt. I'm curious as well

    • @LearntoInvest
      @LearntoInvest  4 ปีที่แล้ว +1

      And thanks for the support!!!!! 👍🙂🙂🙂

  • @timframe570
    @timframe570 4 ปีที่แล้ว +5

    I personally feel that SBBs are a waste of money for any company. It artificially props the stock price and allows for semi-legal insider trading for those in the know of when a SBB is going to occur. A company should always be first looking to grow their company first before giving a dividend or a SSB. A SBB should be a last resort. The thought of leveraging your company to perform a SBB is fairly repugnant in my mind. The ONLY time it is okay to leverage your company is for something that will increase your companies revenue over the long term.

  • @GoodComedian2011
    @GoodComedian2011 4 ปีที่แล้ว +2

    👍

  • @ScratchLotterySask
    @ScratchLotterySask 4 ปีที่แล้ว +1

    Defonitely only ok with massive companies, in my opinion anyway!

  • @mindsinmotion2825
    @mindsinmotion2825 4 ปีที่แล้ว +1

    I haven't experienced a buy back but I know I got hit with a 3 to 1 reverse split and I still think I was cheated

    • @LearntoInvest
      @LearntoInvest  4 ปีที่แล้ว +1

      Lol, understandable, it's tricky to watch the stock price get cut like that. But even though a stock split doesn't affect the value of your position at all, often times, the lower price can be attractive to some investors, so in theory it could help your stock in the long run... Hopefully 🙂

    • @mindsinmotion2825
      @mindsinmotion2825 4 ปีที่แล้ว +1

      @@LearntoInvest well a reverse is opposite the take away shares and raise the price of each share but depending in the number of shares you hold you may loose shares

    • @LearntoInvest
      @LearntoInvest  4 ปีที่แล้ว +1

      Fair point, for some reason the first time I read your comment I skipped the very important word, reverse. Frankly the reasoning behind a reverse split has always been very important in my mind. I try to ask myself questions like, how much was the stock when the did the reverse split. Often times of a stock price gets below a dollar, there is fear of a delisting. In many places, stocks under 5 dollars cant be bought on leverage, so some companies may do it then. Or are they just managing the price for some reason? I don't mind splits as long as they are well explained by the company. Sorry for the mis read before

    • @mindsinmotion2825
      @mindsinmotion2825 4 ปีที่แล้ว +1

      @@LearntoInvest no problem. Best believe once the stock went up to a profit I sold out of my position

  • @stevecorrell9325
    @stevecorrell9325 4 ปีที่แล้ว

    Really??

  • @Ciborium
    @Ciborium 4 ปีที่แล้ว +1

    I think it is safe to say that the workers would prefer they reinvest the cash into the company, e.g., wage increases. After all, t hey accumulated all that cash by underpaying the employees.

    • @tomlxyz
      @tomlxyz 4 ปีที่แล้ว +1

      Except for some rare cases raising wages isn't an investment at all and only brings down its profitability. And it's bold to assume that the company with profits always underpays employees

  • @itspoisoned11
    @itspoisoned11 4 ปีที่แล้ว +1

    this guy is about to bust