The Federal Reserve Flow of Funds Accounts for Q2 2009 showed a positive net issuance of Non-farm Non-financial Corporate Equities at an annual rate of $88 billion (Table F.102).

At the same time, cash dividends of this sector fell 22.5%, from the annual rate of $465.8 billion in 2006, to only $360.7 billion in Q2 2009.

This is a reversal of behavior observed until Q1 2009, when it seemed that the Stock Buyback Era might not be dead, after all.

See: “Stock buybacks refusing to die … live on!”

This is the first significant statistical indication that the stock buyback era may indeed by over.

What it will take before the “stock buyback death certificate” can be issued

The stock buyback era started in 1982 with SEC Rule 10b-18 that gave safe harbor to corporate executives to use equity repurchases to fraudulently manipulate stock prices upwards to give value to their stock options.

The US Security and Exchange Commission has not yet revoked Rule 10b-18, but it has published a Q&A page on its web site indicating that it seems to be at least vaguely aware of the unfair impact of this rule on ordinary investors.

There is far more criticism of stock buybacks today, than ten years ago.

However, public opinion is still far from rejecting the practice as being clearly fraudulent.

See: Stock Buybacks — A Fable

Academic support for stock buybacks is still strong and MBA candidates are not yet being taught that the practice is unethical.

See: New York Times: Are Buyback Stocks Still Good for Investors? . This article discusses yet another academic pseudo-scientific apology for stock buybacks.

The permanent demise of stock buybacks will ultimately depend upon investors switching their attention from the false promise of “total returns” (which includes non-realized capital gains) to the solid comfort of cash-in-the-bank “dividend yields”.


This is the third article in a series of tutorials about post-modern security analysis.

The economics of security analysis

Security analysis provides a service for investors (often self-service) that has a cost in terms of the analyst’s time. To make economic sense, this cost must bear a reasonable relationship to the benefits of analysis.

A flood of complex information ...

The purpose of this analysis is to provide a factual basis for investment, in order to diminish risk and increase profit opportunities.

Security markets are said to be “efficient” when factual information is freely available and amply researched and analyzed by skilled investment experts, and when investors act on this information in a “rational” manner.

The Crash of 2008 provides evidence that markets were not efficient in the first decade of the 21st century, partly because the volume of free information had become greater than analysts could digest, and partly because many investors had foregone the task of security analysis, trusting that others would do this work. Billions were invested in unmanaged “index funds”. Major financial institutions failed because of their inability to accurately evaluate their own financial assets.

Efforts of paid financial analysts

According to the US Bureau of Labor Statistics, there were 221,000 people working as financial analysts in the United States in 2006, with total annual earnings (salaries and bonuses) of USD $14.7 billion.

More »


This is the second article in a series of tutorials about post-modern security analysis.

Classic “Intrinsic Value”

The central concept of classical security analysis is “intrinsic value”.

This term is defined as follows in the first chapter of “Security Analysis (1940 Edition)” by Benjamin Graham and David Dodd:

"Intrinsic Value" is a fuzzy concept
… intrinsic value is an elusive concept. In general terms, it is understood to be that value which is justified by the facts, e.g., the assets, earnings, dividends, definite prospects, as distinct, let us say, from market quotations established by artificial manipulation or distorted by psychological excesses. But it is a mistake to imagine that intrinsic value is a definite and as determinable as is the market price.
Our notion of intrinsic value may be more or less distinct, depending on the particular case. The degree of indistinctness may be expressed by a very hypothetical “range of approximate value”, which would grow wider as the uncertainty of the picture increased … It would follow that even a very indefinite idea of the intrinsic value may still justify a conclusion if the current price falls far outside the maximum or minimum appraisal.

The “facts” on which “intrinsic value” was to be based were considered to be relatively simple and easily acquired at the time Graham & Dodd published the first edition of “Security Analysis”, which stated:

1910 ad for "Standard" stock index cards
Descriptive analysis consists of marshalling the important facts related to an issue and presenting them in a coherent, readily intelligible manner. This function is adequately performed for the entire range of marketable corporate securities by the various manuals, the Standard Statistics and Fitch services, and others.

Because of this assumption (reasonable at the time), almost the entire volume of “Security Analysis” (often considered to be the Bible of “fundamental analysis”) was devoted to the analysis of data from these standard, easily obtained secondary sources. Little attention was devoted to the job of collating and researching data from original sources (OSINT). More »


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