It's funny you mention Walt Disney. I often think of Walt Disney when I think about today's corporate stock buybacks. Under CEO Bob Iger, Disney has spent $38.3
billion (and counting) on buybacks.
In my opinion, stock buybacks are a major cause of today’s sluggish economy, even as the stock market booms. Stock repurchases are one of the great sins of modern corporate management.
Quoting a recent
article in USA Today (I know, not always the best source):
Flush with cash and a world of opportunity at their doorstep, companies have decided there's nothing more attractive than themselves. So, they're offering big money to buy back their own stock. This year, big U.S. companies have given the go-ahead for $286 billion of buybacks, up 88% from the same period last year, according to Birinyi Associates, a market research firm. If the pace continues for the rest of the year, the tally will exceed the record set in 2007.
Just imagine what today’s economy would be like if those companies creatively invested that $286B rather than buried it in their own stocks.
Just imagine what today's WDW would be like if corporate Disney would spare a few billion for WDW.
There are valid reasons to repurchase stock, for example, if a stock is undervalued or to thwart hostile takeovers.
However, Disney is a blue chip stock. As such, it’s considered a safe haven and, if anything, is overvalued after the recent run-up. In addition, its market cap is so large that it’s in no fear of hostile takeover.
Companies such as Disney should be investing in growth initiatives. Build another domestic theme park. Make more movies. Diversify into another industry. These growth initiatives pump tremendous amounts of cash into the economy, resulting in a robust business environment that benefits all, especially companies with imaginative leadership able to identify these growth opportunities.
The key is to have senior executive management who understands and believes in the creative side of their company. Who view their business as an organization with an objective to grow through investment, through research & development, through innovation.
America was built on innovation.
Sadly, most senior executives manage their company’s money, not their company’s business.
Repurchasing stock inflates stock prices but does not create shareholder value. No product is created and sold. No profits are realized. Repurchasing stock essentially takes cash and buries it in the sand, dampening long-term growth. It’s good for this year’s stock price but bad for the company’s long-term future.
Disney’s senior executives should be embarrassed that they can’t figure out how to invest more intelligently.
I have no doubt that if Walt Disney were alive today, he’d have
many ideas how to invest that money.
Creative corporate leadership has lots of ideas but never enough cash to realize all of them.
Dull corporate leadership has lots of cash but never enough original ideas to spend it.
And still the Yeti doesn't work.