Thread by @patrick_oshag

1/ With buyback nonsense again on the rise, some myth-busting (from paper by @ChrisMeredith23) ...

@ChrisMeredith23 2/ Buybacks can be expected to continue at high rates so long as interest rates continue to be lower than the earnings yields of companies and will continue to garner accusations that CEOs are manipulating earnings and
stock prices to line their own pockets.

@ChrisMeredith23 3/ But the data offers stronger support for the claims that buyback programs
on average generate long-term excess returns for shareholders, driven by the earnings of the companies. It does
not mean every buyback program is done for the same reason...

@ChrisMeredith23 4/ and surely that some managers are repurchasing shares to try and manipulate earnings while thinking about their options—but the majority of the repurchase programs are beneficial to investors.

Some charts...

@ChrisMeredith23 5/ Companies do tend to meet or beat EPS estimates, which looks like "manipulation," perhaps via buybacks

@ChrisMeredith23 6/ But the CEOs of companies buying back the most stock (largest percent of shares in trailing year) don't have more stock/option based compensation than the rest of companies (actually slightly less)

@ChrisMeredith23 7/ Also, if you invert it, and isolate just the stocks with highest CEO ownership, you see they aren't repurchasing more shares than the rest of companies

@ChrisMeredith23 8/ There are also restrictions around when companies can buyback stock, the open window, the blackout period, and earnings period (see charts)

@ChrisMeredith23 9/ The returns are highest during the earnings window, not the open window.

@ChrisMeredith23 10/ The one relationship that is strong is between higher conviction buybacks, valuations, and actual returns. The average high conviction buyback program came alongside cheaper relative prices (and often VERY cheap prices)

@ChrisMeredith23 11/ The overall results for these high conviction buyback companies are impressive: higher forward returns and more consistent returns

@ChrisMeredith23 12/ For those that like Will Thorndike's "The Outsiders," we've found that everything he highlights is true in the data as well (outside the 8 companies he studied).

Disciplined capital allocation...often showing up as large buybacks...has been great for shareholders.

@ChrisMeredith23 13/ Of course buybacks can be very bad and value destructive, but the cash going back to shareholders doesn't just sit there, its usually reinvested elsewhere.

@ChrisMeredith23 14/ If someone has your money and has nowhere to invest it at a strong potential rate of return, what would you like them to do with it? Sending it back via dividends and buybacks makes sense and has led to strong results.

@ChrisMeredith23 15/ There are obviously legitimate concerns around wealth inequality and other problems, but trying to solve that downstream via legislating buybacks is strange.

They are not evil.