Originally Posted by
notEnuf
What other things? Dividends and buybacks were the vehicles of choice, The theory of stock appreciation with balance sheet improvement is just as valid as the buybacks. We will never know if that money would have served the shareholders better by increasing shareholders equity book value (balance sheet) by reducing debt. That also side steps the real motivation, management compensation.
Agree. Amazon is a perfect case in point. No stock buybacks and all the money is sunk back into the business. Their stock price seems to be doing just fine.
That philosophy however is not what they teach in B-school anymore. Stock buybacks and LBO’s are
de riguer. The formula for determining how much money should go to stock buybacks is taught. Now it’s suck out as much money as you can, while you can rather than plow all the money back into the business. I mean, why would you want to plow all your money back into a highly cyclical business like the airlines?? Your opportunity and time to suck money out is limited.
Not to mention all your like-minded buddies are on the board, and yes, 90% of your compensation is stock options. What could go wrong?
When it doesn’t work out - declare bankruptcy.