Some Perspective on Buybacks Given Recent Criticism


Buybacks have been put back into the spotlight as boogeymen. Earlier this week, Senators Chuck Schumer and Bernie Sanders wrote an op-ed in The New York Times attacking share repurchases. Among their accusations were that stock buybacks mostly benefit the wealthy and divert money from being spent on capital expenditures, salary increases and other worker benefits.

It’s not the first time buybacks have been criticized and I doubt it will be the last. Making buybacks a scapegoat is an easy sound bite to score political points with. The reality about share repurchases is more complicated; as such, I’m going to provide some perspective.

If you invest in stocks, you should prefer companies with either falling counts of shares outstanding or at least no increase in the number of shares outstanding, all other things being equal. Such stocks have outperformed by a big margin, with annualized gains of 17.5% and 16.6% based on data from Dartmouth professor Kenneth French’s data library for the period of 1964 through 2018. You also want to avoid the companies with the largest increases in share counts; such companies have annualized returns of just 4.4%.
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Highlights from this month’s AAII Journal

AAII Sentiment Survey

Optimism jumped to its highest level in three months, though not far above its historical average. Plus, this month’s special question asked AAII members what they thought about the Federal Reserve potentially pausing its rate-tightening cycle. More about this week’s results.

This week’s results:

  • Bullish: 39.9%, up 8.1 points
  • Neutral: 37.3%, up 0.9 points
  • Bearish: 22.8%, down 9.0 points

Historical averages:

  • Bullish: 38.5%
  • Neutral: 31.0%
  • Bearish: 30.5%

Take the Sentiment Survey.

AAII Asset Allocation Survey

Equity allocations jumped to a 12-month high. Plus, AAII members discussed what, if any, allocation changes they plan to make this year. More about the latest results.

January AAII Asset Allocation Survey results:

  • Stocks and stock funds: 71.2%, up 8.8 percentage points
  • Bonds and bond funds: 15.5%, down 0.3 percentage points
  • Cash: 13.3%, down 8.4 percentage points

January AAII Asset Allocation Details:

  • Stocks: 33.3%, up 5.4 percentage points
  • Stock Funds: 38.0%, 3.4 percentage points
  • Bonds: 3.2%, down 1.1 percentage points
  • Bond Funds: 12.3%, up 0.7 percentage points

Take the Asset Allocation Survey.

What’s Trending on AAII

The Week Ahead

It’s going to be another busy week for earnings, with many smaller companies reporting in addition to the more than 60 S&P 500 companies on the calendar. Included in the group are Dow Jones industrial average components Cisco Systems Inc. (CSCO) on Wednesday and Coca-Cola Co. (KO) on Thursday.

The week’s first economic report will be the December JOLTS report, released on Tuesday. Wednesday will feature the January consumer price index (CPI). The January producer price index (PPI), January retail sales and November business inventories will be released on Thursday. Friday will feature the February Empire State manufacturing survey, January import and export prices, January industrial production and capacity utilization and the University of Michigan’s preliminary February consumer sentiment survey.

Three Federal Reserve officials will make public appearances: Kansas City president Ester George on Tuesday, Cleveland president Loretta Mester on Tuesday and Wednesday and Atlanta president Raphael Bostic on Wednesday and Friday.

Local Chapter Meetings

AAII Local Chapter Meetings offer you a variety of presentations from expert speakers who will give you their view on the world of investing. A bonus of attending a Chapter Meeting near you is the opportunity to meet other AAII members who share your interest and enthusiasm for investing. You can even share the Chapter experience with your family and friends by inviting them to attend Chapter Meetings with you! Upcoming Meetings »

1 Reply to “Some Perspective on Buybacks Given Recent Criticism”

  1. Regarding your opinion of stock buybacks:
    “our slice of the ownership pie gets a little bigger”
    I would suggest using’s bottom/last line of Financials > Balance Sheet data, because of the negative trending over recent years of a company’s total of “Net Tangible Assets”, as the primary indicator of what any company’s stock is really a “share of”! Initially take a look at AT&T (T) or Boeing (BA) and then check Apple (AAPL). Or you can use SI Pro, as I have, to see that only 43 (!!) of the S&P500 have had “Net Tangible Assets” which increased each year for the past 6 years (and the count only increases to 81, if you change the parameters to ask if NTAs are greater this year than 3 years ago, as well as being at least 95% of the previous year’s for the last 6 years).


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