Grinold-Kroner........Why subtract out share repurchases???

[tyler4040]

So I’m a little lost on this, why are share buybacks decreasing the expected return???

 

[S2000magician]

If the company repurchases shares, the payment they make is equivalent to a dividend, in the sense that stockholders are receiving additional cash. If you own 1,000 shares and sell 100 of them back to the company, you have received a 10% return on your investment. (This is similar to the idea at Level II of dividend indifference: if the company doesn’t pay a dividend, you can create your own by selling shares.)

 

[bahgill]

youre subtracting out the change in shares outstanding, not neccessarily subtracting out share repurchases as your title suggests. ( - Change in shares outstanding)
If the shares outstanding increased, that would mean the company issued new shares (a positive increase in change of shares outstanding) and thus you would be subtracting from expected returns as people paid into the stock and thus brought down returns.
However, if shares outstanding DECREASES, meaning the company repurchased shares like S2000 said (a negative decrease in change in shares outstanding), that means that you will be subtracting a negative change in shares outstanding, and of course two negatives makes a positive….thus increasing expected return as shareholders received cash from the companies.
Does this make sense??

 

[cpk123]

if it is a share repurchase - you would be performing a -(-) so an addition to the return- to add to what bahgill has stated above.
but if new shares were issued - the number actually gets subtracted.
Return per share - increases when # of shares decreases
Return per share - decreases - when # of shares increases.

 

[1BigStudMuffin]

you be subtracting a minus which is a positive shun.