Apple Lost $11 Billion Buying Back Its Own Stock In 2018

There's a funny thing about buybacks: when stocks are rising (and are therefore more expensive), companies have zero doubts about repurchasing their own stock, especially if said purchase is funded with cheap debt. Of course, by repurchasing their stock, the price goes even higher making management's equity-linked comp more valuable, which explains why management teams usually have no misgivings about allocating capital to this most simplistic of corporate uses of funds. However, when stocks fall, companies tend to clam down on buybacks due to fears that the drop may continue, forcing the CFO or Treasurer to explain his actions to the CEO or the board, and why they risked losses on capital (as well as getting a pink slip) instead of investing in "safer" corporate strategies like M&A, R&D or capex.

The irony, of course, is that companies should not be buying back stocks when the stock is rising (as that's when it is more expensive), and accelerate repurchases when it is dumping. And yet, that virtually never happens in reality as management teams, like most investors and algos, tend to chase momentum and direction. Meanwhile, confused by underlying pricing mechanics, management - which is singlehandedly responsible for the levitation in the stock price with its buybacks - then watches its stock price tumble, even more, one stock repurchases are halted.

But the "funniest" moments are reserved for when companies spent tens of billions on stock repurchases then had the rug pulled under from under the market - and their stocks - resulting in billions in unbooked losses on invested capital.

And in 2018, there has been no company that has had a greater share of "funny" buyback moments than Apple, which as we reported recently, accounted for 24% of all buyback growth in the first half of 2018, a year that will go down in history books for a record $1+ trillion in stock repurchase announcements and over $700 billion in executed buybacks.

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