August 7, 2022

Buybacks: Good or Bad, They’re Huge & Getting Bigger

Your mileage may vary when it comes to the arguments on the relative merits of stock repurchases, but there’s one thing that nobody’s arguing about – the amounts involved are huge & getting bigger all the time. According to S&P Global, buybacks by companies in the S&P 500 during the first quarter of 2022 were $281.0 billion. That’s a 4% increase over the record $270.1 billion expended during the 4th quarter of 2021. Furthermore, S&P said that over the 12-month period ending in March 2022, companies spent a record $985 billion on buybacks, up 97.2% from the prior12-month period’s $499 billion.

I’m generally agnostic about buybacks, but those numbers give me pause, because at their current rate, they suggest that our largest public companies can’t more productively deploy nearly $1 trillion of their assets per year in their own businesses. The magnitude of those numbers makes me wonder whether buybacks are a solution to a capital misallocation problem or whether they’re just evidence that our capital markets have a huge capital misallocation problem.

John Jenkins