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Technology Stocks : Intel Corporation (INTC)
INTC 34.50+2.6%Nov 21 9:30 AM EST
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To: Khris Vogel who wrote (51301)3/26/1998 9:12:00 AM
From: Alan M. Kozakiewicz  Read Replies (2) of 186894
 
This whole discussion of stock buybacks is interesting.

I personally think buybacks are a bad idea. FWIW, here's why, not in any order of importance:

1. Companies often engage in buybacks for the same reason central banks spend taxpayer money to buy currency: to mask serious underlying problems. They are treating the symptoms and not the disease.

2. It's a non-wealth creating exercise. The concentration of capital is a precious thing and should not be squandered on what is essentially a restructuring of ownership.

3. It suggests that the company has no ideas for growth that will yield a greater return than the cost of its own capital.

I invest in companies which I believe have the resources and ideas to create wealth well beyond my own limited abilities. My opinion is that if you are fortunate enough to generate large amounts of capital through operations, you have two choices. If you are in a mature industry (which Intel is not vs. say, Boeing or Caterpillar) in which the potential for growth is constrained, give the money back to the shareholders in the form of dividends. If you are in a growth industry, spend that money on developing and bringing to market new products and services that provide a high return on investment and add real value to the company.

Reserve market stock purchases for the few things where it makes some economic sense, such as funding employee compensation plans.

Regards,

Al
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