Other Approach Than Stock Buybacks

Hi friends,

I've been reading a lot on Warren Buffet lately because I wanted to pick his brain and learn from his method of investing. What better way to learn than to observe what the Oracle of Omaha has to say for himself, right?

After sifting through several articles, I've gotten into sections where Warren Buffet explains his ideas on what should be done on the investment earnings that an investor receives. In general, there are 3 ways that an investor should do to benefit from the earnings that their investments have made:

1. If the cost of getting profit is cheap, it is rational to reinvest all of those earnings.
2. If the cost of making profit is expensive, distributing dividends to shareholder is rational.
3. If the share price of its own stock is undervalued or is at fair value, stock buyback is rational.

Based on the 3 ways of managing earnings, I have some stifling thoughts about the stock buybacks. Personally, I'm not sure if I would agree on doing so because it seems to me that stock buyback results in an artificial growth in the share price by limiting the outstanding shares in the market.

It is at this point where I agree more with Ray Dalio's definition of assessing value of an investment at hand which is by increasing the level of productivity in its business. The approach to increase productivity could derive from optimizing various aspects of the business model be it the delivery of goods and services, or by increasing labor incentives. If I were to suit the options in hand on ways of handling earnings towards my preference, I would lean towards distributing incentives to the labor force to increase morale or to put the cash on the money market just so to prepare myself when opportunity strikes on my stock watchlist. Either of these choices would derive more value on the investment at hand.

However, I'm sure there are more details that I'm missing out when it comes to the benefits of stock buybacks. Knowing my limit of knowledge right now, I'm keen on exploring more on the best ideas on optimizing earnings to maximize profits, be it directly or indirectly.

I still share similar views as Warren Buffet as his overarching idea of value investing is still something that resonates close to my belief. It is only in the case of stock buybacks where I'm just not looking to him eye to eye. Regardless, Warren Buffet is still executing what he preaches as we all know the amount of cash that Berkshire is sitting on. Even with his behemoth cash pile, he still haven't made any considerable acquisitions, including buybacks. Instead, he's just waiting on the sideline waiting for the next best deals, which to me is rational.

I've been obsessing about the investment world because I hope that I could have my own investment portfolio that's enough to sustain my life. Wish me luck, friends!

Fin.