Talk of buybacks has been in the the air lately on twitter, blogs, papers, etc. I get the basics, Modigliani and all. Dividends, buyback, investment (projects) are what the company does with surplus. I have no problem with this and I certainly agree with the recent pushback by the fin-twit crowd on the intellectual vacuousness, if not intellectual adolescence, of the anti-buyback crowd.
I have no real comment on dividends or buybacks as such, though I do happen to enjoy receiving dividends for my own reasons. But let's call all three methods more or less equivalent and worthy and defensible propositions that have some variation on taxation and efficiency. Except, I guess, sometimes for the third...
I point out investment (projects) in particular because supposedly that is what is being "starved" according to the critics with ill effects due to the starvation, I suppose they'd say, on employment and income inequality. I also point it out because I have seen no small number of "projects" with my own eyes. As a former management consultant with a global consulting firm, I have been in or near many "projects" over the years. And here's the deal. On all but a few, all of the people should have been fired and the project shut down given the foolishness of the plan, the incoherence, the waste, the inefficiency, the errors, the weak management... I get it. It's a portfolio concept and some have to fail. But there was a lot of fail.
Maybe this makes "their" point about employment and certainly I never wanted to get fired for being on one of these crappy projects. But now, as an investor, the idea that a corporation, on which I have some small claim, would -- instead of paying out my surplus in a dividend or buy back some or all of my shares or put it into the very very best of growth opportunities...for me -- pour it into one of these ill advised and poorly managed projects? It's a form of thievery. Or at least it's a form of burning money in a greasy pit. I'd take a buyback any day. There are plenty of productive things I could do with the cash.
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