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Is Cash Still King?

Rather than buying back shares, most companies would be better off investing in their business or holding the cash.

Gregory V. Milano, | US
February 4, 2011

Causation vs. Correlation

Some of what you say makes sense when considering the unfortunate timing of recent share buybacks (meaning 2007). That was clearly a transfer of wealth from long-term shareholders to others. But the real issue that you do not discuss is related to the difference between causation and correlation. It makes sense that companies with fewer obvious investment opportunities would return cash to shareholders rather than make bad investments. So even though there is a difference in returns, you have not made a good case that returns would likely be higher if these poor-performing companies invested more cash. This point is exacerbated by quoting anyone from Occidental Petroleum's management, who have a lengthy history of overpaying executives at the expense of shareholders and ignoring their own corporate succession policies.

Posted by Matthew Johnson | February 07, 2011 04:16 pm

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