Even Goldman Sachs Wants Companies to Stop Buying Back Stock
Arguing that US equities “look expensive on most metrics,” Wall Street uber-bank Goldman Sachs has issued a note recommending that companies stop spending cash buying back their own stocks:
We forecast buybacks will surge by 18% in 2015 exceeding $600 billion and accounting for nearly 30% of total cash spending. We recognize activist investors often advocate for firms to return excess cash to shareholders via buybacks. Tactically, repurchases may lift share prices in the near term, but in our view it is a questionable use of cash at the current time when the P/E multiple of the market is so high.
You know: buy low, sell high, not the other way around.
Of course, Goldman doesn’t go so far as to recommend that companies reinvest their cash in their own businesses—there are no fees for Goldman to earn off of that—instead, they’d rather their profits be spent on mergers and acquisitions, the investment bank’s bread and butter. But it’s at least interesting to see even Goldman questioning the wisdom of stock buybacks.
Goldman points out that companies have exhibited particularly “poor market timing,” with buybacks last peaking in 2007 at 34 percent of cash spent, just before the Great Recession market crash. So much for shareholder value maximization.





