Share Buybacks: Why They Don't Appeal to Value Investors as Much as Dividends

One of my axioms is that, behind any incongruous anomaly in the markets, there is usually some government regulation or intervention causing it. For example, why do so many people drive SUVs? Why, because of Section 179 of the United States Internal Revenue Code, which allows a taxpayer to deduct the cost of a vehicle weighting more than 6,000 pounds gross vehicle weight as an expense, rather than requiring the cost to be capitalized and depreciated over time. I have been studying share buybacks because of my micro-capitalization value investments like Conrad Industries (CNRD.PK). Apparently, as recently as three or four decades ago, companies in the U.S. were wary of buying back their own shares because this could be considered illegal price manipulation. However, the SEC established a safe harbor for stock buybacks called Rule 10b-18, which provides a safe harbor for purchases on a given day. The rule has... Read more

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