Bye-Bye Buybacks
Bye-Bye Buybacks
Recently, the US government enacted a 1% tax on share buybacks. But what exactly are buybacks, and why do they matter?
A share buyback, also known as a stock repurchase, is when a company buys back its own shares in the open market. The shares are then retired, reducing the number of shares outstanding and increasing the ownership stake of remaining shareholders.
Buybacks can be an effective way for a company to return cash to its shareholders. Different from dividends, which are typically treated as a regular and ongoing commitment to shareholders, a buyback allows for a one-time use of cash.
Despite the benefits of buybacks, there has been debate over whether they are good for the economy as a whole. Some argue that companies should be investing in growth and innovation rather than buying back their own shares. Others worry that buybacks can be used to artificially inflate share prices, benefitting executives and large shareholders.
Warren Buffett, one of the world's most successful investors, has been a vocal advocate of share buybacks...when the price is attractive. As he outlined in his most recent investor letter, "Every small bit helps if repurchases are made at value-accretive prices. Just as surely, when a company overpays for repurchases, the continuing shareholders lose. Gains from value-accretive repurchases, it should be emphasized, benefit all owners -- in every respect."
At First Fiduciary, we invest in industry-leading companies. In many cases, they generate more cash than is possible (or reasonable) to efficiently re-invest in their own businesses. With excess cash, our portfolio companies often increase their dividend or repurchase their own shares. In our view, if executed properly, share buybacks are an important way for a company to use its excess cash to the benefit of all of its shareholders rather than frivolously spend on potentially less productive alternatives.
Articles We Enjoyed:
Chips Are the New Oil
Instead of black gold, will the next war be fought over access to semiconductors?
18 Years Old Again
A tech founder and his team of 30 doctors are trying to turn back the clock on human aging.
Munger Says America Should Ban Crypto
Berkshire Hathaway’s Charlie Munger believes cryptocurrency is nothing more than gambling. He outlines why it should be banned in a Wall Street Journal editorial.
Mahomes
Fun story about the best QB in the NFL, and the players who intercepted him…in high school. Where are they now?
Dog Breed Popularity
The Economist discusses what makes dog breeds popular in various countries.
Baseball Player Sails Off Into the Sunset
People daydream about leaving their job behind and setting sail on the open sea. John Jaso actually did it.
Notable Reads:
Stranger in a Strange Land
by Robert Heinlein
Published in 1961, Stranger details the life of a man (Mike Smith) born on Mars (the offspring of two human astronauts raised by Martians) who returns to Earth as an adult. More Martian than human, Smith struggles to make sense of life here. The book’s reputation as a classic in the hard scifi genre is well-deserved, but the story is primarily a commentary on life in the early-60s and Heinlein’s own views on relationships and politics. The character of Smith’s mentor (Dr. Harshaw) is often considered a stand-in for the author himself. While preachy, Harshaw’s exposition provides a big source of comic relief and greatly increases the entertainment value of the story. Highly recommend. – AG
Stephen Florida
by Gabe Habash
Stephen Florida is a collegiate wrestler looking to win a national title in his senior season. Standing between Florida and the title are injuries, family drama, and his narcissism. The book is an uncomfortable dive into the level of obsession and the sacrifices required to be elite at anything. But is the juice worth the squeeze? An intense read that I won’t soon forget. – AG
Restaurant Review:
Edwins
Cleveland, OH
Edwins (www.edwinsrestaurant.org) may be Cleveland’s best restaurant for fine dining. Located at 13101 Shaker Square Boulevard, Edwins is not a typical restaurant, however. It boasts a 95% employment rate for its “graduates” with a less than 1% “recidivism.” Edwins is a training ground for formerly incarcerated adults to develop skills in the hospitality industry. Most of the restaurant staff are students seeking a better future. The food is excellent, the presentation impeccable and the staff has an enthusiasm and desire to please unmatched by any other restaurant we know. A recent visit featured starters including artichokes braised in white wine and olive oil as well a beautiful salad nicoise. An unusually warm April evening provided us the opportunity to enjoy dinner al fresco. Our entrees included grouper wrapped in a crispy potato crust and vegan gnocchi. The fish was mild, moist, and cooked to perfection. The gnocchi, served with morel mushrooms and asparagus, was flavorful and delicious. Dessert featured bananas foster prepared tableside and served with homemade vanilla ice cream and a chocolate pyramid with Grand Marnier-laced strawberries. The meal was excellent, but the highlight was talking with the staff and sharing their zest for their new careers. When the bill comes, instead of a tip, the restaurant asks for a donation to help the program continue to change lives. Edwins has expanded to a second, more casual restaurant across Shaker Square as well as a butcher shop and bakery. Edwins graduates 75 students a year and the trainees are eligible for free housing, legal services, basic medical care, clothing, job coaching, literacy programs, and more at the Second Chance Life Skills Center. – BH
More Than A Trusted Investment Advisor
Recently, we reviewed and helped our clients designate beneficiaries for any retirement accounts where they were missing or where we thought the beneficiary might need to be updated. Designating a beneficiary is a critical part of estate planning and includes choosing a primary and contingent beneficiary for assets like retirement accounts, bank accounts, and life insurance policies. Not designating a beneficiary can lead to unnecessary complications and delays for loved ones after a death, and it is important to update beneficiaries as personal and financial situations change. Sometimes, a trust may have been named as a beneficiary while designating individual beneficiaries might lead to tax savings and better fulfillment of a client’s wishes. Let us know how we can help!
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This newsletter contains links to external third party websites that are not affiliated with First Fiduciary Investment Counsel. FFIC does not control or direct the content of the information contained on these websites. Information contained on the third-party website is relevant on the date the newsletter was published but may be changed or revised by the third parties without the knowledge of and/or notice to FFIC.
Statistics and other information have been compiled from various sources. First Fiduciary Investment Counsel believes the facts and information to be accurate and credible but makes no guarantee to the complete accuracy of this information.
Past performance does not guarantee future results. The mention of securities or types of securities in this newsletter should not be considered as an offer to sell or a solicitation to purchase or sell any securities mentioned. Neither First Fiduciary nor the authors hold positions in any of the stocks mentioned unless otherwise stated.
First Fiduciary Investment Counsel, Inc. is a registered investment adviser with the Securities and Exchange Commission. A more detailed description of the company, its management and practices is contained in its firm brochure document, Form ADV, Part 2. A copy of this form may be received by contacting the company at: 6100 Oak Tree Blvd., Suite 185, Cleveland, OH 44131; Phone: 216.643.9100; Email: ffic@firstfiduciary.com.