Financially Indefensible

During the period of 1/01/2015 through 9/30/2018, Exxon Mobil, per its SEC-published Statement of Cash Flows in its financial reports (10K and 10Q), expended approximately $6.193 billion of owners' cash to acquire common shares from the market. As of 1/01/2015, Exxon had 4.201 billion shares outstanding; and as of 9/30/2018, there were 4.233 billion shares outstanding.  The result: continuing shareholders gave up more than six billion dollars in the most recent period, ostensibly in exchange for $6 billion worth of share reduction; however, at the close of September 2018, there were 32 million more shares outstanding than when the cash-blowing operation began. More than $6 billion of owners' cash was expended for the shares bought and therefore may not be argued as having been needed by the company.  Shareholders might reasonably ask why the alternative of an additional $6 billion in cash dividends were not paid?  That is, for continuing shareholders of Exxon-...

Conflating Shareholders: The stock buyback trend has been extremely hot in the last several years among major U.S. public companies.   Multi-billion-dollar buyback programs are announced by management and the market often reacts positively without any analytical scrutiny.   Buybacks are neither positive nor negative in a vacuum; the efficacy of the program is eventually borne out by whether the shares repurchased were attained well below their intrinsic business value.  If so, accolades to the management; and if not, tomatoes. The bandwagon effect becomes far more dubious among large businesses when management conflates two species of stockholders, those Warren Buffett refers to as Continuing Shareholders and those he calls Departing Shareholders.  This distinction has little relevance most of the time; however, whenever a company announces a stock buyback program, the importance becomes paramount.   The distinction is critical in evaluating the efficacy...