Samir Patel: Stop Caring About Bad Share Repurchases

Samir Patel is founder and portfolio manager of Askeladden Capital, a concentrated, value-oriented, long-only, small-cap fund.

My intern Matt likes to joke that if brevity is the soul of wit, then the two of us are Amy Schumer; that is to say, Twitter is pretty much the opposite of our best medium. Even so, not every valuable thought requires a novella’s worth of text. Here’s a useful one that should take you less time to read than your hourly dose of clickbait: next time you see an investor whine about management destroying value by repurchasing stock at unreasonable valuations, ignore them, because it’s irrelevant.

This! as you might notice, is a very contrarian (even heretical) argument. Some of the smartest value investors I know are quick to, with the benefit of 20/20 hindsight, complain about management purchasing stock at $XYZ when, 12-18 months later, it trades at some meaningful discount thereto. Now, of course, capital allocation is very important – and past actions can be an indicator of future ones – but in my experience, there’s not always much (if any) correlation between management’s thoughtfulness as acquirers and management’s thoughtfulness as share-repurchasers. I have met many management teams that would never do a stupid deal but who routinely repurchase their own shares at absurd valuations.

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