Bank of America Corp (BAC), Citigroup Inc (C): It’s Time to Get Our Minds Right About Stock Buybacks

Confusing the exception with the rule
To return to the legal profession, there’s a common logical error that lawyers are drilled to avoid. It consists of confusing an exception to a rule with the rule itself.

In this case, the rule is that share buybacks are harmful to shareholders. The exception is that they create value.

And when I say exception, think “exceptional.” Indeed, off the top of my head I can’t name a single repurchase program that would have done more for shareholders than a dividend. Not a single one. Does that mean there aren’t any? No. I’m sure there are — perhaps Berkshire Hathaway (NYSE:BRK-A) could be cited here. But like I said, they’re the exception. To reiterate, they are not the rule.

My point is that it’s time to get our minds right about stock buybacks. They’re bad. They destroy value. And they hurt shareholders. Period. The instances in which this is not the case are so few and far between, they can effectively be ignored.