It’s also fun to do, apparently.
Let’s examine the mechanism that helped propel Apple’s share price to new heights.
The company was and is generating a shit-tonne of free cash flow. Carl “fuck you, give me three seats on your board” Icahn demanding that Apple, incredulously, borrow money in order to buy back shares. Tim Apple acquiesces and a new era of financial engineering was born.
Fast forward 5 years and Apple isn’t making all that much more in FCF, but the shares are +125% — double the return of the SPY. How?
Well, because THEY FUCKING BORROWED $104 BILLION DOLLARS AND USED IT TO JIMMY RIG THEIR OWN FUCKING STOCK, reducing the amount of shares and artificially increasing earnings.
Is that a really good fucking idea?
You tell me? What if Samsung’s phones did not catch fire and instead poleaxed Tim Apple into a giga factory? Well, if that happened then business would sink, earning collapse, and then Apple would be out of $104 billion with nothing to show for it. This really is a shameful exhibition of journalism by CNBC, cherry picking Apple as a poster child for financial rigging, when in fact the exact opposite is true for 90% of companies doing share buybacks.
HOW MUCH DID LEHMAN WASTE ON BUYBACKS?
In present day, how much did GE waste buying back their own stock? Or how about old Valeant Pharma? Remember those fuckers? Companies desperate to get a rise in buybacks usually buy back shares in an attempt to assuage activist shareholders. Instead of using the FCF to build the business, they dick around with their brokers reducing shares and creating artificial EPS growth by this insidious fucking process.
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It’s evil and un-American.
Does seem evil but what if they have a higher Return on Equity than anywhere else. May as well invest in yourself. Got to put money on the pass line if you’re rollin’.