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Sunday Finds (On Monday) + Thoughts on Buybacks
Pods on merger arbitrage and Dollarama this week
Welcome to Chit Chat Money’s Sunday Finds + One Thought From Last Week newsletter. In this newsletter you will find a topic I wanted to write about from last week, links to shows we’ve recently released, and links to some interesting articles, podcasts, and tweets. Check out the archive here.
Chit Chat Money Podcasts From Last Week
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Some thoughts on buybacks
We focus a lot on buybacks. A lot of the best-performing stocks have steadily shrinking share counts.
We also talk a lot on the podcast about good buybacks vs. bad buybacks. But what exactly separates a good share repurchase vs. a bad one?
For me, here are some signs I may be looking at a bad repurchaser:
Authorizing large buybacks but not buying back much, buying back sporadically, or buying back only when the stock is expensive*
Talking about buying back stock to “offset dilution”
The share count chart is underwhelming vs. all the hype the company puts around its repurchases (look at Wix hyping up its buybacks vs. the actual shares outstanding chart). Show me, don’t tell me.
Prioritizing the dividend to remain in good light with the dividend mutual funds.
*You can’t expect everyone to be a great capital allocator. Just be consistent with the repurchases unless your stock gets crazy expensive
The last one is especially frustrating. Given the tax advantages, share repurchases should generally be prioritized over dividends. Plus, if you have a durable business, you want your stock price to go down so you can return cash to shareholders at a cheap cash flow yield.
Autodesk is a prime example of a bad repurchaser:
Down less than 5% in 10 years.
Here are some signs the company is a good repurchaser:
The company talks about share repurchases as returning cash to shareholders (indicates they at least get the basics)
Share count chart consistently goes down and to the right
That’s it. Just two things and I think you can be a good repurchaser of stock. Simple. But you’d be surprised how many companies fail to exhibit even a sliver of competence here.
Sprouts Farmers Market is an example of a good repurchaser (pause during pandemic can be discarded):
See you next week,
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3 Intriguing Reads
Far from getting wrapped up in confusing or sophisticated concepts like the blockchain or Tether, the government has made it clear that the crimes Bankman-Fried is accused of are actually pretty typical: taking money that doesn’t belong to you, spending it on whatever you feel like, and then lying to cover up what’s gone. They’ve also managed to sift through what could be a confusing vortex of entities with names like “Paper Bird” and “North Dimension” via a sort of Chekhov’s subaccount strategy: If you hear the words “Emergent Fidelity Technologies” in the first act, you can bet they’ll show back up later to cause drama and inflict harm. And the prosecution has, to great effect, paired witnesses with multimedia: The highlight of the testimony of former FTX lawyer Can Sun wasn’t necessarily his recollections, but rather a brutal Good Morning America clip of Bankman-Fried that was entered into evidence.