Wednesday, September 01, 2010

Gary Kaminsky On Stock Buybacks

Earlier this week, in his co-hosting role on CNBC's noontime program, Gary Kaminsky made a very coherent little presentation which reinforces an aspect of the proprietary equity research on which my equity portfolio selection and management strategy is based.

Kaminsky displayed price charts for Intel and Microsoft for the past few years. In each case, he demonstrated that, since each firm's substantial stock buyback programs, their prices had flattened.

I don't recall the exact dates for each equity, but the nearby Yahoo-sourced price chart for INTC, MSFT and the S&P500Index makes the case for the last five year period, within which has been each firm's buyback activity.

All three series are down for the period, with both companies below the S&P, meaning, adjusting for risk of lack of diversification, they've both done significantly worse than the index.

Kaminsky only said that he believes corporate senior managers lack the touch for timing their stock buybacks.

I'll go much, much further, based on my own research.

In a statistically significant sense, stock buybacks shrink capital. Capital growth is related to consistently superior total returns. So are some other fundamental measures, both inputs and performance, which accompany the growth of capital.

Shrinking production inputs is going to get you a low- or no-growth company. Which is why I have not considered either Intel or Microsoft to be a growth company for at least a decade.

That's what's really behind Kaminsky's charts and contention.

More power to him for reminding investors that companies which can't do any better than to shrink shareholder capital aren't going to be succeeding in highly-competitive, growth-oriented product/markets.

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