Companies Are Bad At Stock Buybacks, So What Can You Do?

I was recently studying the terrible record of financial institutions when it comes to repurchasing their own stock—I read that AIG, Citigroup, Lehman Brothers, Bank of America, Merrill Lynch, and Countrywide combined to repurchase over $100 billion of their own stock respectively before the financial crisis, which then got reduced to a little over $18 when you size up what remains after the financial crisis. Obviously, those are the obvious examples of when stock buybacks go wrong.

But still, the art of the buyback is something that very few companies can get right on a consistent basis, because the times when companies are flush with cash tend to be during prosperous economic times that also correspond to high stock prices, and when stocks get cheap, the money tends to get tighter, and stock buybacks don’t get purchased at their opportune times. It’s like reading the diaries of individual investors during The Great Depression—there were men out there who know that buying AT&T and Procter & Gamble with 10% dividend yields was a once-in-a-lifetime deal, but keeping their family fed and the lights on was a struggle, so they weren’t in a position to act on the opportunity they saw.

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