Click here to read part 1 of this series.

Click here to read part 2.

You can read the first part of this series here.

London Business School finance professor Alex Edmans devotes a substantial portion of his excellent book Grow the Pie to stock buybacks. His discussion offers an honest recapitulation of both the political and financial case against them, showing that he has taken that point of view seriously. He then describes what buybacks actually are and what they do, in order to get people oriented around an accurate understanding of the fact pattern. Then he offers a partial defense of stock buybacks, with some suggestions for dealing with the particular situations in which buybacks shrink, rather than grow, the “pie” i.e., create economic benefit for stakeholders.

This is part of a series on stock selection research. You can find the introductory blog here.

When you are deciding whether to invest in a company, you are not just deciding which company to buy -- you are also choosing which investors to join with. You get a share in the company, but you also find yourselves in a relationship with others who have done the same. They can affect your life because they can affect the company that they own along with you. So smart investors need to look beyond the company itself and to the potential peer group of investors, because some types of investors are part of the problem, whereas some are part of the solution.