MBI Concepts, 30 September 2019
It is hard to convince shareholders that share buybacks don’t work. The logic just seems so darn rational: reduce the supply of something and demand will drive the price of that something up. One investor on Seeking Alpha, a financial markets forum, commented that “I want to be the last person holding that last share worth $100+ billion dollars!
Trying to respond to such an individual is reminiscent of what Dale Carnegie wrote decades ago that a man convinced against his will is of the same opinion still. The individual’s comment completely overlooks the demand side of the supply-and-demand equation. The market today doesn’t consider IBM worth much over $140 a share despite its spending $201 billion on its shares since 1995–double its market value at the end of 2018. Still, some insist that if the corporation buys back enough shares the scarcity will increase shareholder value.
