Incredible distillation of timeless corporate finance principles. Tim Koller’s emphasis on capital returns, not just growth, cuts through the noise in today’s valuation-chasing market. The reminder that valuation is a function of both ROIIC and growth—especially in a world obsessed with topline metrics—feels more relevant than ever.
"[Repurchases are] an excess capital allocation decision, and if you control for the quality factor and favorable timing, there is no meaningful alpha vs. shareholders reinvesting their dividends."
This is not the case. Ask yourself why Buffett never pays dividends and yet is happy to engage in timely buybacks.
Repurchases can't contribute to top line growth, but they can contribute to shareholder returns. They can also act as a catalyst for correcting an undervalued share price.
Let me ask you this: What's the difference between acquiring someone else's company and acquiring more of your own company via buybacks? The latter is certainly far less risky as there no skeletons hidden in the closet, and there are no integration challenges. So if your own company is on sale in the market, how can it not be value creating to remaining shareholders to buy more of it?
Let me tell you a story. Sidney Harman executed a strategic maneuverer by selling his hi-fi company, Harman Kardon, for $100 million in 1976, only to repurchase it four years later for $50 million.
Wouldn’t we all like to have that kind of luck?
What's intriguing is that public companies can achieve a similar outcome on a fractional basis through repurchases.
Any company can issue stock when the price is high and buy it back when the market undervalues it. It's exactly what Henry Singleton did at Teledyne and doing so delivered huge shareholder returns well beyond anything he could have achieved for them simply paying out balance sheet capital as dividends.
This is the most misunderstood area of finance, and I don't know why. It isn't difficult.
If you want some more reading on the topic, may I suggest:
Incredible distillation of timeless corporate finance principles. Tim Koller’s emphasis on capital returns, not just growth, cuts through the noise in today’s valuation-chasing market. The reminder that valuation is a function of both ROIIC and growth—especially in a world obsessed with topline metrics—feels more relevant than ever.
The more that I've learned the more I realize how little I know
Thanks vm, especially Nr. 5 is well explained! 👌
Great post, but I disagree with some of it.
"[Repurchases are] an excess capital allocation decision, and if you control for the quality factor and favorable timing, there is no meaningful alpha vs. shareholders reinvesting their dividends."
This is not the case. Ask yourself why Buffett never pays dividends and yet is happy to engage in timely buybacks.
Repurchases can't contribute to top line growth, but they can contribute to shareholder returns. They can also act as a catalyst for correcting an undervalued share price.
Let me ask you this: What's the difference between acquiring someone else's company and acquiring more of your own company via buybacks? The latter is certainly far less risky as there no skeletons hidden in the closet, and there are no integration challenges. So if your own company is on sale in the market, how can it not be value creating to remaining shareholders to buy more of it?
Let me tell you a story. Sidney Harman executed a strategic maneuverer by selling his hi-fi company, Harman Kardon, for $100 million in 1976, only to repurchase it four years later for $50 million.
Wouldn’t we all like to have that kind of luck?
What's intriguing is that public companies can achieve a similar outcome on a fractional basis through repurchases.
Any company can issue stock when the price is high and buy it back when the market undervalues it. It's exactly what Henry Singleton did at Teledyne and doing so delivered huge shareholder returns well beyond anything he could have achieved for them simply paying out balance sheet capital as dividends.
This is the most misunderstood area of finance, and I don't know why. It isn't difficult.
If you want some more reading on the topic, may I suggest:
https://rockandturner.substack.com/p/how-dividends-destroy-shareholder-value
https://rockandturner.substack.com/p/henry-singleton-learn-from-the-best
https://rockandturner.substack.com/p/gulf-oil-pays-500-dividend-yield
I also cover it in detail in my book: https://www.amazon.com/dp/B0D6GWV7T5