Now a couple of weeks on share buybacks. This is an extremely controversial topics. Share buyback is basically the company buying back shares from the shareholders. Now you could say well, but you know if shareholder wants to sell the share, they can do it in the market to any other person and that basically the implication of that is that it would keep the number of shares constant. When I sell you my share or when I buy your share from you, the number of shares circulating trading doesn't change. When a company buys the shares, then those shares ceased to be in circulation, so to speak. So the number of shares trading at a given point in time goes down. And that means that everything that is calculating on a per share basis, earnings per share, dividends per share tends to go up. That's the big difference between trading shares between individual investors and trading shares between an investor in the company. In the first case, between individual investors, the number of shares doesn't change. In the second case, when the company buys back shares from investors, the number of shares is reduced, and everything that is measured on a per share basis actually tends to go up. So earnings per share look better. Book value per share looks better. Cash flow per share looks better, and on. Now with that said, I do want to emphasize that this is. I always think that share repurchases are a little bit like gold. There's people that love gold and people that hate gold as an asset, share repurchase side a little bit of the same thing. It's kind of a sentimental things some people love share buybacks, and some people despise share buybacks. There's one thing that is very important, and that is most of the evidence tends to show, as we mentioned before, that dividends tend to fluctuate little overtime. Dividends are sticky, but the evidence also shows that share buybacks tend to fluctuate a lot more. In other words, dividends have this implied promise that if you increase the dividends, you going to keep that higher level of dividends, up in the future but share buybacks, don't have that implicit promise. You can buy back more shares today. That doesn't imply in any way. Shareholders would not expect that you're going to do it again in the future. So, we observe and I'm just going to show you a picture in just a second. We observe that buybacks tend to fluctuate a lot more than dividends tend to do so. As an illustration of these a couple of things. One is that going back to the issue of stickiness that companies tend to do a lot to avoid cutting or suspending a dividend. But if prospects deteriorate, buybacks are the first thing to take away. Well, think right now in July of 2020, in the middle of the pandemic, many companies will be paid in the near future, less dividends that they have paid in the past. But before they do that, they will suspend whatever share buybacks. They had planned for, and so the share buybacks will be the first thing to go. And if they need to retain more money, then they will think about suspending the dividends. Sometimes it is the case when you have a from the government. In this extreme circumstances that they are one of the considerations or one of the clauses. If you will, of the money of the government lend you money is, say well, but you're not going to use this money to buy back, share from shareholders, you need to put it back in the company you need to. Pay salaries whatever is the use of that money, but you're not going to use it to buy back share, and again this goes back to how controversial these share buybacks can be. Now, this is just the picture that I mentioned before, the pink line is basically the evolution of dividends overtime. This is what the S&P 500 you can see right around 2008 how dividends tend to go down, but then they resume the upward trend. So between 98 and the end of 2019, you have dividends more or less a steadily increasing overtime, but the blue line is buybacks. And look at that line it's all over the place, fluctuates a lot more than dividends. That which means that companies may decide to buy back a lot of shares today, and very quickly revert the decision the year after that or the year after that. That's why this is very different from the perspective of managers and from the perspective of shareholders, dividends have, as we said before, that implicit promise that you're going to keep keeping up those increases in the future or keeping up those decrease in dividends in the future buybacks whether you start them or you're suspended them or your raise them or your lower them don't have that implicit promise? So that's an important consideration that managers take into account, when decided whether they pay a dividend or they buy back shares, of course. And as usual in many of these things, this is not an either or decision. And as a matter of fact, many companies up until all these pandemic, they were buying back shares aggressively at the same time that they were paying dividends. Some companies do one, or some companies do the other, and some companies decide to do both.
