How share buybacks work
A buyback is only good if the shares were bought below what they are worth. Companies are famously bad at judging this.
Judge whether a buyback created value or destroyed it.
How share buybacks work works, in one picture
The same argument as the text, as a chain. Each step is what makes the next one possible.
What you actually own
A share is a slice of the whole company: its profits, its assets and its votes. Your slice is small, and it is a real claim, not a bet on a ticker.
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The mechanics: fewer slices, same pie
The company buys its own shares and cancels them. Total profit is unchanged, but it is now divided among fewer shares, so earnings per share rise. Each remaining share owns more of the business.
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It is a dividend in disguise
It returns cash to shareholders, but instead of sending it to everyone, it concentrates ownership among those who stay. In many jurisdictions that is more tax-efficient than a dividend, which is much of why it became so popular.
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Whether it works depends entirely on the price paid
Buying back shares below intrinsic value transfers wealth to continuing shareholders. Buying above it destroys wealth. It is exactly like any other investment decision, and the company is buying an asset it is not remotely objective about.
Companies buy back most aggressively when cash is plentiful and confidence is high, which is to say near the top. The record here is genuinely poor.
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And check whether it is even real
Many companies buy back shares with one hand while issuing new ones to staff with the other. The headline buyback is enormous, the share count does not fall, and the entire exercise was a way to pay employees in stock without you noticing.
Ordinary. The market expects steady, unremarkable growth.
You check the share count over five years, not the buyback announcement.
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A buyback is only good if the shares were bought below what they are worth. Companies are famously bad at judging this.
Every one shows its exact method, and the circumstances in which it is wrong. Free, and no account to look.