I expect corporate stock buybacks to increase significantly in size and frequency over the next 25 years.
There are a lot of rumors and discussion about Apple buying back some of its stock, especially with Carl Icahn buying up shares and looking as though he will take an active role in steering the company.
Do you remember the boom of the late 90s? There wasn’t much talk of stock buybacks. Stock was being issued out to the public like mad in IPO’s or secondary offerings. I see the next 25 years being the opposite.
I can’t say for sure if Apple will do a huge stock buyback. I also wouldn’t speculate (as Carl Icahn is doing) as to whether Apple is going to be a great performer over the next decade. I wouldn’t even speculate as to whether Apple will even be around in a decade.
But I will speculate that, in general, stock buybacks will be big over the next 25 years. As the baby boomers retire and start eating through their savings, they will have to start selling their investments. Wealthy investors, on the other hand, won’t necessarily need to liquidate investments to support their lifestyle. Corporations will also be in a position to buy back a lot of this stock that the baby boomers will be forced to sell.
It all points to a period of increased wealth concentration
A stock buyback concentrates the remaining corporate equity into the hands of the fewer, remaining shareholders. Overall it basically means wealth, especially investments in the stock market, will become more concentrated into the hands of fewer, wealthier individuals. This isn’t necessarily a horrible or historically unusual situation. It wasn’t until recently that the middle class became stock investors. Prior to the 1980s, generally only the wealthy could deploy extra money into risky investments like stocks. Think back to the pre 1980s world. Do you remember a lot of middle class families with stock driven portfolios like you see today?
In the end it will essentially be a reversion to a historical norm. The trick is to be on the side where wealth is concentrating rather than the side that is liquidating.