For every Apple, which has delivered a 60 percent gain for investors who bought into each of its three buyback announcements, there has been an AT&T, which gained just 6 percent when it launched its buyback this year after shares had quadrupled since 2011. IBM, Qualcomm, Wal-Mart and Pepsico have lost money since their mega-buybacks began.
The results are similar in ETFs that try to exploit buybacks. The SPDR ETF that tracks S&P 500 companies that focus on buybacks has trailed the S&P index itself by nearly 3 percentage points over the past year. The star in the crowd is theTrimTabs Float Shrink ETF (TTFS), an actively managed fund that holds more than 200 stocks. It has beaten the S&P 500 by more than 30 percentage points since launching in late 2011.
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That doesn't mean buybacks aren't sometimes a good tool. Buffett thinks they make sense when they're deployed by more mature companies that can't easily reinvest the money.
In the S&P 500 overall, returns for companies that buy back the most stocks beat the broader index handily, according to a report by research firm Aranca, although the heaviest-weighted performers among members of S&P's buyback index are lesser-known names, such as Cameron International, which makes oil field equipment. Buffett himself says he weighs buybacks against acquisition opportunities, and buybacks during market dips are usually the better deal.
"Disciplined repurchases are the surest way to use funds intelligently: It's hard to go wrong when you're buying dollar bills for 80 cents or less,'' Buffett said in Berkshire Hathaway's 2012 shareholder letter. "But never forget: In repurchase decisions, price is all-important. Value is destroyed when purchases are made above intrinsic value."
By Tim Mullaney, special to CNBC.com