Stock Market Corrections: Long Live The Buybacks!
Some of our Tortoises are cannibals with ample liquidity to scoop up shares
Last month, we demonstrated the compounding mechanism for companies retiring their own stock at good valuations.
The Kings of Buybacks - Why Consistency Leads to Mind-Blowing Returns
Following yesterday’s webinar, which highlighted our IRR model and the pitfalls of a theoretical DCF, we’d like to dig deeper into the below slide. If we’re unsure of a company’s allocation, a Discounted Cash Flow (DCF) and/or calculated but un-nuanced IRR will make us draw the wrong conclusions
As we look ahead, there will always be volatility in the stock market, scaring many investors off to buy the dip. But let’s assume: valuations are getting ridiculously cheap, you’re already buying shares with both hands and the companies you own generate steadily growing cash flows. Aside from investing for future growth, they decide to go all-in on share buybacks as they’ve figured out the IRR on their own stock investment exceeds their hurdle rate.
That sounds like a mega goldilocks scenario. But how do you find those world-class companies whose management teams stay rational and have the guts to buy their own stock (along with insider purchases) whenever there’s a sizable correction? Let’s look at two of our sizable portfolio holdings that historically have used stock market corrections to their advantage.