The Weakest Link in Today’s Market

Expending more than you take in works for a diet, but it doesn’t for the stock market. That’s the upshot of a recent Wall Street Journal article by Steven Russolillo, who writes that today’s ultra-low interest rate market is allowing share prices to “stay higher for longer than under more normal circumstances.” What could “end this game” he argues, is the amount of cash companies are paying out to investors–which is now exceeding the earnings taken in. Russolillo quotes New York University finance professor Aswath Damodaran, who believes this to be a significant risk. Damodaran says that “S&P 500 companies […]

O’Shaughnessy Emphasizes the Value of “High-conviction” Buybacks Over the Long Term

Jim O’Shaughnessy, O’Shaughnessy Asset Management, says a long-term investor should be buying now, and compares “low-conviction buybacks” (defined as 5% or less) and “high-conviction buybacks” (over 5%) in identifying attractive stocks. From 1987 to 2014, he says, the return on low-conviction buybacks was 12.1% annually (about 1% over return on all large stocks), but the return on high-conviction buybacks was 15.9% annually. Further, he says that the buyers of these high-conviction buyback stocks “were buying their stocks when they were dirt cheap.” Of all buybacks, 70% are low-conviction, according to O’Shaughnessy. Going forward, O’Shaughnessy says investors should be taking a […]

O’Shaughnessy Emphasizes the Value of "High-conviction" Buybacks Over the Long Term

Jim O’Shaughnessy, O’Shaughnessy Asset Management, says a long-term investor should be buying now, and compares “low-conviction buybacks” (defined as 5% or less) and “high-conviction buybacks” (over 5%) in identifying attractive stocks. From 1987 to 2014, he says, the return on low-conviction buybacks was 12.1% annually (about 1% over return on all large stocks), but the return on high-conviction buybacks was 15.9% annually. Further, he says that the buyers of these high-conviction buyback stocks “were buying their stocks when they were dirt cheap.” Of all buybacks, 70% are low-conviction, according to O’Shaughnessy. Going forward, O’Shaughnessy says investors should be taking a […]

Corporate Buybacks Largest Buyer of Stock

Last month, Bloomberg highlighted the high level of company buybacks, noting that since the mid-2000s “corporations and investors have switched positions as the bigger buyer of stocks.” Specifically, “inflows from equity funds exceeded corporate buybacks every year in the late 1990s,” but corporate buybacks hit record levels in 2007 and have remained high. The article suggests that “the reluctance of investors to pile into equities has left corporate America the largest source of cash throughout the bull market,” drawing on an interview with Howard Silverblatt of S&P Dow Jones Indices. “Last year, corporations beat all other groups as the biggest […]