Otherwise companies are pressured to spend money just because they happen to have money, even if they don't have anything productive to spend it on. That's not a good thing.

Executives are doing this to meet performance targets and get bonuses. Not to allocate capital efficiently.

That's not to say companies won't do buybacks though, just that they have a duty to shareholders not to blindly buyback their own stock if they believe they could allocate that capital better with an acquisitions, etc. At a time like this when unprofitable, yet very innovative companies have lost a lot of value relative to big tech companies like Microsoft and Google I'd argue that they might be better off allocating that capital more towards acquisitions than buybacks.

This is also why I don't really understand why shareholders of Apple support their current buyback program. Given their stock trades at a near record-high valuation both absolutely and relative to the market large buy backs makes very little sense from a capital allocation perspective. Although I guess they would argue there is literally no where else to put those billions of dollars. Still, that doesn't mean it's a good thing for shareholders, just that they're now forced to allocate capital poorly given their size.

Buybacks increase the share price, which is a typical metric for executives. This leads to a situation where it is in the interest of the exec to increase buybacks in order to drive the price up, even if the company performance is not that good.

Personally, I'm neutral except for this one thing.

Unfortunately, asking a CEO whether their company is undervalued is like asking a barber if you need a haircut. That's how you run into situations where companies with absurd cash reserves like Apple and Microsoft are buying back their own stock, but for what purpose? They already have boatloads of cash! They don't need to raise any more!

There are plenty of simple options to deal with this. A law could require stock buybacks to be matched with dividends or taxed at a punitive rate. Alternatively, it could be mandated that buybacks require a majority of shareholder votes, thereby aligning shareholder needs with company activities.

I guess if you’re an electric utility that’s fine. If you’re supposed to be an innovative tech company, and you don’t know what to do with your cash???

Buffett/Berkshire is literally the only example I can think of where they only buyback shares when prices drop below a certain threshold. Most companies do it regardless of whether it is creating or destroying value, based only on whether they have cash authorized to spend.

Instead of investing in R&D, buying assets, streams of income, creating new products, renovating facilities, or even paying your own people, a stock buyback says that all of those things are basically a worse ROI on the business than just handing the money over to shareholders.

In general, I think my professor was right. I think there are good reasons to potentially buy out investors and so on, but usually these programs are done under the guise of making shareholders richer, but I just don't see that as the case.

The best way to enrich shareholders is by simply giving them a dividend, or by running a more profitable business (which will drive up the stock price).

Everything else is basically financial machinations that look good, but are mostly meaningless.

In our modern state of stockholder supremacy, that doesn't tend to matter much. But I think it should matter more.

The argument against buybacks are that they aren't very efficient -- CFOs tend to buy back when the stock price is high, and that it rewards people for not holding shares.