Michael Blair is a fool and a shorter...Those of you on this board who are praising Michael Blair's blog are complete fools! Lets breakdown what actually occurs during buybacks and how it adversley affects shorters.
1) When a company buys back shares, they buy those shares on the open market and the seller has no idea who he has sold those shares to! Generally speaking, anyone could have bought them. The seller receives his cash and the company reduces it's share count.
Ask yourself this, how many investors sell their stock on the open market only because they are aware of a share buyback. Michael actually answers this very question and I quote, "The investors who believe a particular stock is undervalued are offset by other investors who think the shares are overvalued and the equilibrium of those views is the current share price."
2) Those of us who are holding on to our shares believe that future dividends will be increased per share, simply because there are now less shares. In essense, anyone who sold their shares to the company, during this process, is transferring possible future gains (book value and FCF) to the remaining shareholders. Yet again, Michael does mention this in the article, "Increasing value can only come from a higher present value of future dividends."
3) What Michael has conveniently forgot to mention is that buybacks cause major headaches for shorters. The shares that have been shorted are also now worth more and the shorter has to also cover the higher dividend.
Kherson