A Look At DwotBuyback's
Early, as in this Feb 2007 post, I was saying that I didn't think buybacks were good for investors. They create an artifical demand for the stock that stops once the buy back program is finished, and they tend to strongly enable executives to do what is best for executives rather then shareholders as they artificially inflate the share price with the buyback program and win the "You can't prove I'm a corporate fraudster" lottery as the cash out their options, essentially replacing many of the so called bought back shares.
For BHP it looked like my call was wrong as the share price continued up. But, my prediction was that the buyback would ultimately reward those who sold out rather then the long term buy and hold investors. You have to ask yourself how good of an investment it was for investors buying shares back at prices up to $95 when the share price is $36 now?
Early in 2008 I saw an ETF that was just stocks with buybacks, and I made a portfolio with just the buyback stocks, dwotBuyback.
For a long time this portfolio looked terrible. Early I took a closer look and my timing setting it up was awful. When I looked at a sample of 60 of the stocks in the portfolio and I found that the S&P was down something like 10% from peak when I set it up, but my random sample of 60 stocks were down 30% from their 52 week high, so when I set this buyback portfolio the stocks had already taken a significant hit ahead of my setting up the portfolio. I forget the exact details, only that my timing was such that this portfolio had an extra 20% to make up for if it was actually going to "win."
This portfolio is "winning."
The math is much easier on this portfolio because they were all set up pretty much the same day. The S&P is down 30.15% since setting it up and it is down an extra 2.42%, or the stocks are down an average of 32.57%. But keep in mind, in my sample they were already down an extra 20% from their 52 week highs over what the S&P was already down.
So, I'd say this is a sufficiently big enough sample to say the buybacks have been a disaster for investors. They simply rewarded the sellers at the expense of the buy and hold investors and they also enabled the stocks to bubble much higher then the S&P.