No. of Recommendations: 17
No doubt Apple shareholders have done very well, with or without buybacks. Pick anything where the price has gone up and to the right dramatically, and 2010's buybacks look like a wonderful use of capital, just as investors at those levels look prescient. Congratulations.
But as to buybacks being carried out at the average price, over time, there's some evidence to suggest that managers at the *average* firm buy back stock at higher than average prices. That is, their timing isn't neutral, but pathological. For those interested, Fortuna Advisors publishes an annual study of the efficacy of corporate buybacks. Here's the study for 2021 (SB: link opens a PDF), but you might want to look at pre-pandemic studies as more representative of 'normal' economic conditions -- it's up to you.
https://fortuna-advisors.com/wp-content/uploads/20... In general, lots of shares get repurchased when people are optimistic and prices are high. Many fewer shares (not just lower dollar amounts!) are repurchased when conditions are challenging. So managers aren't dollar cost averaging their repurchases -- they're stopping purchases when they should be starting, and vice versa. In theory, I'd think a highly-compensated manager would be able to foresee that economic conditions will sometimes be challenging, but few seem able to overcome an incentive system that rewards optimism and happy thinking and punishes hoarding cash. More reason to appreciate those who can!
Here's a recent real-world example: CarMax, which had happily been buying back stock at prices over $95, announced a pause in buybacks in the most recent Q (which was pretty dreadful) "to maintain a conservative balance sheet." So lots of shares got repurchased just under $100 and presumably zero shares at $55, $60, $65. Assuming we haven't seen a permanent injury or existential threat to the business, this was a stupid capital allocation decision.
