Any tool can be used for the right job or for the wrong job. As Charle Munger says, "To the man with the hammer, everything looks like a nail." It looks to me like stock buybacks are lately the hammer of corporate finance.
While corporate stock buybacks can be good, they are clearly misused. Just like many stock buyers buying at the worst possible time, corporate America is buying its shares back at the top of the market like a drunken sailor buying drinks. Corporate American's stock buyback binge is reaching record new heights.
Sure, there are times when a company's stock is down and buybacks are smart. But, with the market at record heights and stock buybacks reaching an all-time high, you have got to wonder. Is this the herd effect?
With record profits, I would think it would be a great time to plow it back into capital expenditures to improve operations and improve productivity. This process would enhance the long-term viability of their companies. What happens when the cash dries up and, then, the money is needed? The opportunity will have been forgone. Kiss that opportunity goodbye!
I guess we'll see who gets hammered on the "flip side"!
