Myth: Share buybacks are always good for investors

There is this inherent belief that a buyback scheme is always a good thing for investors. It sends a message that the company is doing well. But a number of factors determine whether or not a buyback will create value for the remaining shareholders. Busting the myth Buffett says, "The motivation for a buyback used to be just because companies thought their shares were cheap. Thirty or forty years ago, it was very fertile to invest in companies that were buying back their stock... But that's being swamped today by companies doing it because it's in fashion or to prop up the stock... We wouldn't do it for those reasons." (Berkshire Annual Meeting, 2006). Right time for buyback In hi

This article was originally published on January 21, 2020.