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Stock Buybacks — the good and the bad

Stock buybacks explained! Learn why companies buyback stock (AKA repurchase shares). Stock buybacks can seriously accelerate returns. Learn the good and the bad! ➡️ JOIN OUR MASTERMIND FACEBOOK GROUP:   / intelligentstockinvestors   BEST INVESTING BOOKS 📚 The Little Book That Still Beats the Market ➜ https://amzn.to/3fkkscB 📚 The Outsiders ➜ https://amzn.to/3jeFcmW 📚 100 Baggers ➜ https://amzn.to/3A3Nt49 📚 The Complete Investor ➜ https://amzn.to/2V3Saw5 📚 Richer, Wiser, Happier ➜ https://amzn.to/3igSvUC 📚 The Dhandho Investor ➜ https://amzn.to/3ykf1l9 📚 Tao of Charlie Munger ➜ https://amzn.to/2V9FgMM 📚 The Complete Financial History of Berkshire ➜ https://amzn.to/3kRFRNp TIMESTAMPS 00:00 Intro 00:36 The power of stock buybacks In the book The Outsiders the author details the success and performance of 8 CEOs who did things very unconventionally. One of the things they all had in common was heavy share repurchasing. 02:30 2 Criteria for stock buybacks to make sense Warren Buffett has commented in the past multiple times on his criteria that must be met for stock buybacks to make sense: (1) that there is available cash, and (2) that the stock is trading below its intrinsic value. 03:16 Shares outstanding re-cap To understand why companies buy back stock it’s important to understand the what it means to own shares of stock. Shares represent ownership in a company and there is a direct relationship: if you own 1% of the shares outstanding = you own 1% of the company. 03:37 What happens when a company buys back stock When the shares are repurchased from the existing shareholders the shares are considered retired and the total number of shares that the company’s ownership is divided amongst is reduced. Each share represents more ownership of the company. 04:23 Stock buybacks vs dividends The CEO can decide to distribute earnings as a dividend or retain the earnings and put them to better use - one potential use is stock buy backs. 04:49 Stock buyback example Here is a stock buyback example where we cover what would happen if the earnings were used to buyback stock instead of distributing it as a dividend. 06:24 When stock buybacks are a bad thing Stock buybacks (aka share repurchasing) can be a bad thing if Warren Buffett’s 2 criteria are not met. 09:18 CEOs have two jobs CEOs need to manage the operations and they also need to allocate the cash the company generates efficiently and in a way that maximizes per share intrinsic value.. however, most CEOs aren’t so great with that capital allocation job. 09:59 What the Outsider CEOs had in common 10:34 How to tell if the CEO “gets it” A great trick to tell if the CEO is good at capital allocation is by looking at a graph that shows shares outstanding plotted with historical PE ratio (or another valuation metric like EV/EBIT). This allows you to visually see if they are repurchasing shares and issuing new shares at good time, or not. Special thanks to my incredibly beautiful, smart, and creative girlfriend, Stephanie, for her editing wizardry and creative insights and ideas. Disclaimer: These youtube videos and content are for entertainment purposes only. If stocks or companies are mentioned, Richard may have an ownership interest in them -- DO NOT make buying or selling decisions based on Richard’s videos. All information contained herein should not be construed as anything other than an opinion for entertainment purposes only. Information being provided may be outdated or inaccurate; it is your responsibility to verify all information. No financial advice is being given nor is any other advice of any kind. You should consult with a qualified professional where appropriate and before any action is taken on this video. No liability or damages shall take place because of this video and/or content. There is no express or implied representations or warranty with respect to the accuracy or completeness of the content of the videos, including any content, description, links, or resources shared, including those by third parties. Furthermore, all parties specifically disclaim any and all express or implied warranties of merchantability or fitness for a particular purpose. By watching this and all related videos, you agree to be bound by this disclaimer. #StockInvesting #StockMarketForBeginners #ValueInvesting