Wednesday, September 30, 2009

Stock Buybacks

For those that may view buybacks as a signal that a stock is undervalued, here is an article that offers some food for thought.

From the article:

Some investors claim the current market mustn't be cheap, because companies haven't been quick to gobble up their own shares. That may be true. But if the last several years are any indication, it may be the ultimate contrarian indicator, too.

Poorly executed buybacks have materially hurt shareholder returns in recent times. The article focused on banks but this error in capital allocation doesn't just impact the banking industry. Companies across a variety of industries did similar things.

Unfortunately, wise capital allocation is not something that can be taken as a given when you own a stock.


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