Carol Loomis wrote about the benefit of buybacks in 1985:

Working with the 1,660 stocks covered by the Value Line Investment Survey, we identified companies that bought significant amounts of their own common stock in the ten years from 1974 through 1983. Next we reduced this list to voluntary repurchasers — cutting out, for example, companies that had bought the shares by paying “greenmail” to get rid of a threatening shareholder. Then we measured the total returns (stock appreciation plus dividends) earned by shareholders from the approximate dates of each repurchase “episode” to the end of 1984…

The outcome is spectacularly decisive. The shareholders in the buyback companies earned superb returns, far exceeding those accruing to investors as a whole. For all episodes measured, the buyback companies showed a median total return, expressed as an annual average, compounded, of 22.6%. The equivalent return for the S&P 500 was only 14.1%. That difference of 8.5 percentage points is enormously significant to an investor.

This information has been floating around ever since and the research shows the strategy still works.

The reason comes down to basic math. Buffett calls it smart allocation: Continue Reading…

Finance has a language all its own, with unique phrases that go back a few centuries. A few good examples can be found in an 1875 sales pamphlet book from John Hickling & Co.

Readers got the total Wall Street experience — they snuck in a weekly newsletter and “improved” trading system sales pitch — while learning about the Men and Idioms of Wall Street (not much has changed).

Promotions aside, the idioms are spot on and still offer a few lessons. So I thought I’d share a few that stood out: Continue Reading…