For example, if a stock buyback or amortization is accomplished by distribution of cash pro-rata to all shareholders, then it is essentially the same as a dividend (although perhaps not for tax purposes) and all shareholders will be dealt with equitably. However, if the distribution is not pro-rata, then company assets are being distributed to some shareholders and not to others.

For flow of funds analysis, the point is not to criticize individual companies, but rather to examine the effect of behavior on the entire market, when a practice is widespread. In the case of buybacks, in the US market at least, I think the effect is essentially to boost the price of stocks in the short run (which benefits speculators and free option-holders), while diverting funds from long-term investors who do not sell into the buyback, or if they do, not on as favorable terms as others.

The level of buybacks in the US market has now reached a point that it is the major force supporting prices, which, of course, makes everybody feel happy, even if they don’t sell their holdings and benefit from the price increase. As usually happens, the bad practices of the US market are copied in other markets throughout the world.

Do you think the same if buyback´s shares are amortized?

In that case, it would be seen as dividend reinvestment and stockholders that not sell will be “more owners”.

I catch the general point. My country is a narrow stock market compared to the US. But in recent times, we are seeing more operations of this kind.

Recently two company´s presidents have bought LEAPs of their own actions. One of then has already announced to keep on buybacks, and a net worth reduction (shares amortization). Crystal clear.

Excellent site!!!!! Many, many thanks,