No. of Recommendations: 4
Mungofitch:
Let us pretend that Apple kept all those bought back shares, what would they be worth today?
Interesting question!
Random thoughts:
First, be careful...such discussions are logic minefields.
My conclusion from my analysis is that the $841 billion Apple spent on share repurchases since 2011 had a "Maket Cap" valuation of $3.111 TRILLION today. I say "Market Cap" valuation because, like any Market Cap, it is likely not the amount of money a company could raise by selling an equivalent number of its shares on the market today for a variety of sensible reasons. So as well as we can say "Apple is worth $4Trillion because that is its current market cap" we can say "Apple's investment in buying back its own shares is worth $3.111 Trillion".
So yes, it is a logic minefield. But so are the conflation of "valuation" and "Market Cap". And so is the idea that AAPL shares have a prices intrinsic value on any day, even though no one will ever know what it is until years after, in retrospect.
So I think we walk around the mines instead of over them if we say "to the extent market cap reflects a company's value, the $841 billion of shares Apple has repurchased are currently worth about $3.111 Trillion.
The reason I find this discussion interesting is, I don't currently know how to calculate the optimum amount a company might should spend on share buybacks. Failing to know how to figure the optimum suggests a big uncertainty as to whether Apple is being stupid or not. I thought this calculation, while not being able to address the question of what should Apple have done, what would have been optimum, would at least be able to answer the question, at least as well as Market Cap answers the question for a company as a whole, of what did Apple get for that $841 billion dollar investment. Could they have done better by doing something else? I have no idea, but I do have an idea of how well they did doing the thing they did.
Although I didn't address it explicitly, I tend to resonate with the reasoning that share buybacks only make business sense when they are done for a price lower than the intrinsic value of the shares being bought back. Did Apple's buybacks meet this criterion? I would guess many of us would guess probably not as Apple always seemed to be a high flyer. But if Apple made a CAGR of over 10% on its repurchase investment, so far, then either buying back for less than intrinsic value is not necessary for a good investment, or intrinsic value is "obviously" higher, generally, than AAPL's share price weighted over the buyback period 2012-present.
Is this Market Cap style calculation enough to say Apple has done pretty well with its buybacks, even though we still have no idea how to optimize such a policy?
R:)
