Stock Buybacks and Obama: Lots of Flash, Little Substance
Written by: Aaron Katsman | October 28, 2008
With the stock market getting pummeled investors have run for cover. Panicking after losing significant chunks of their savings, investors are looking for any reason to jump back into the stock market. Unfortunately instead of rewarding investors, companies are trying to fool them. As if we haven’t seen enough corporate irresponsibility, the new trend of corporate stock buybacks artificially increases EPS, thus fooling investors into thinking the company is actually growing.
It’s funny that this trend towards buybacks has taken hold as Barack Obama has surged in the polls. Much like Obama’s economic policy, share buybacks are cosmetic solutions but often nothing concrete to reward investors. Sort of like running a campaign on hope and change!
Enough trickery, investors have suffered enough. It’s time to start rewarding investors. How? Remember that old time word they used to use, ‘Dividend.’
I know that share buybacks are ‘tax efficient’ as well as they fatten EPS numbers, but how about doing something radical for investors? Something like paying a dividend, or investing in growing the company. Doesn’t a stock buyback just mean that the company has nothing better to do with their money? Give some of your profits back to shareholders. Hey, there is an idea!
For a great analysis of the pros and cons of buybacks, check out economist Stefan Karlsson’s blog.
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Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.
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