Share Buybacks – What They Are and What They Aren’t

S companies have spent $2 trillion doing something that has absolutely no impact on their business. Imagine a restaurant that always has some empty tables. Sales are actually OK, and it’s profitable, but the restaurateur’s backers are obsessed with profits per table. They think raising that number would make the restaurant seem exclusive and attractive to new investors. But no matter how hard he tries, the restaurateur just can’t get more people in the door. So he does something else: He takes away some tables. It costs money to move and store the tables, but that very month, the same number of people visit the restaurant, and profits per table go up. Sales haven’t changed, but now the investors are happy. If this bothers you, consider that it’s exactly like something public companies in America do every day.

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