May 2024

To Our Business Partners


Public companies, like individuals and institutions, routinely buy their own company’s stock in the open market.  Some do it to offset the issuance of stock options to employees.  Some do it to manipulate earnings per share (EPS) upward by reducing the number of shares outstanding in the denominator of the EPS ratio.  Some – very few, see below – buy their own stock because it’s selling at a discount to intrinsic value.   

Stock buybacks are in the news lately, as there appears to be a resurgence in activity – up a whopping 16% in the first quarter of 2024 compared to a year ago.  We generally are in favor of buybacks, as they are a better use of corporate cash than paying or increasing dividends, and they give the remaining shareholders a higher percentage stake in the company.

While there are pros and cons to company stock buybacks, we have a couple concerns.  One practice in recent years has been for companies to borrow money to buy back stock.  This was especially true when interest rates on borrowings were near zero.  While this might be an intelligent use of capital, it may now have significant longer-term effects.  Given the sharp rise in interest rates, more and more companies are experiencing the double-whammy of rising interest expense on refinanced debt, along with weakening economics.  This phenomenon can severely restrain a company’s ability to withstand a business downturn. 

Secondly, stock buybacks have a positive effect when a company’s shares are undervalued, but they are questionable and perhaps destructive when shares sell above intrinsic value.  In recent years there seems to be a tendency for buyback activity to increase after there has been a market advance.  In fact, many of the companies with active buyback programs are currently those whose stock prices seem way overvalued.  With stock prices at or near record highs, such activity is detrimental to shareholder value and not a good use of shareholder capital.

We like share buybacks, but only when management’s economic interests are aligned with ours.  That is, the stock must be bought at a discount to future value which presents a low-risk opportunity for an attractive future return.  “Buy low, (sell high).


There’s virtually no change in valuation over the past month of rising pricesOur widely held stocks, as a group, are still expensive. 


All market indexes retreated 4-7% in April, led south by smaller company indexes. Year to date, results are mixed, with small and mid-cap indexes down 1-2% and the large-cap indexes up 4-6%. Over the last twelve months, the large cap indexes continued to dominate, advancing 2128%, while the smaller company indexes experienced gains of 11-15%. Over the past year, the capitalization-weighted S&P is up 21% compared to an equally weighted calculation of the same 500 companies up only 11%Indexes in which the companies are equally-weighted are a much better measure of how “The Market” is doingOur group* of portfolio stocks compares favorably to most of the indexes over the last month, year to date, and last twelve months. 

Steve Nichols, CFA • Bill Warnke, CFA •  Andy Ramer, CFA

*The group of “portfolio stocks” — our Equity Composite for the purpose of evaluating investment performance — consists of 19 stocks that are held in our clients’ accounts. Portfolios might hold some or all of these stocks, depending on investment guidelines unique to each client, the timing of purchases and sales, and start dates of accounts. The performance of this group of stocks is a good proxy for our equity performance but might vary widely among accounts. Of course, past performance is not necessarily indicative of future results.

We hereby offer to deliver to you without charge a copy of our current Form ADV Part 2, in accordance with the U.S. Securities and Exchange Commission’s “Brochure Rule.” Please contact us if you would like us to send you a copy.