No. of Recommendations: 21
Here's an unpopular opinion or three (buy one, get two free!). A share count that decreases steadily, year after year and quarter after quarter, indicates a company that throws off a lot of cash, run by managers who are lazy, stupid, dishonest, or more interested in virtue signalling than doing right by their shareholders. They may be using repurchases at high prices to hide stock-based compensation, or justifying them under the cloak of "signalling confidence," or they may have an inflated idea what the company is worth. But repurchases at prices that are too high are simply destructive to value. That there are even worse, more destructive things to do with shareholder capital (e.g., lighting it on fire, making expensive, "transformative" acquisitions) is no excuse.
I think people forget that Singleton wasn't just a "cannibal" -- he used Teledyne shares as currency when they were overpriced. Buffett has done that too. It's really exceptional.
As much as I hate having an involuntary taxable event inflicted on me quarterly in the form of a dividend, at least that money -- which was, let's not forget, mine to begin with -- is now out of the grubby hands of managers. I get to choose where and when to reinvest it. In theory, it should be really hard to make up the tax hit, but prices of S&P firms fluctuate so much that if you know eight or ten companies reasonably well, there's usually one that's sufficiently cheap. I do remember times when I really couldn't find anything to buy -- and redeploying dividends should have been the least of my worries then.
Why even consider investing with management teams who are willing to pay too much (of your money) to buy back shares? I think there's one good reason: management isn't everything. There are extraordinarily few humans who are able to behave rationally, consistently, in a business environment. In contrast, there are always some quite good businesses being run by the managerial equivalent of a ham sandwich, and sometimes these businesses get cheap.
