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The Evils of Debt-Funded Share Buybacks

Companies can make debt-funded share buybacks. This has several effects on shareholder value. First, the interest payments reduce the future earnings. Second, the number of shares is decreased which potentially increases the future earnings and dividends per share. Third, the risk of default and bankruptcy is increased. Read more ...

Portfolio Variance is Not Risk

Mean-variance portfolios are commonly believed to minimize risk for a given level of expected return, because variance is believed to measure risk. But this is incorrect as proven with a short example. Read more ...

J. C. Penney's Share Buyback and Issuance

J. C. Penney is an example of a company that first bought back shares at a high price that would require future earnings growth to justify the share-price, and then the company made a subsequent share issuance at a much lower price that caused disproportionate dilution. Read more ...

The Deception of Stock Options

Stock options are granted to employees as part of their compensation in an effort to align the interests of employees and shareholders. But if the stock is underpriced when the options are granted and the stock is overpriced when the options are exercised, then the employee is overcompensated at the expense of shareholders. A recent example of this occurred with the company Best Buy. Read more ...

How To Value Apple's Share Buyback

During the past year, a few celebrity investors have been pushing for Apple to increase share buybacks because the investors believe Apple's shares are undervalued. But the investors do not provide arguments as to why share buybacks would be good for the long-term shareholders; why Apple's shares are undervalued; or what will ultimately happen if the investors are wrong in their beliefs. Read more ...

How To Value Facebook's Acquisition of WhatsApp

Facebook recently announced its acquisition of WhatsApp for USD 4b in cash and 230m shares and Restricted Stock Units. The acquisition was discussed extensively in the media but the discussions were vague and inconclusive because of the lack of proper valuation formulas. This article outlines the necessary valuation formulas. Read more ...

Mid-Cap Madness

An extremely profitable trading opportunity suddenly arose yesterday for Exchange Traded Funds (ETF) that invest in U.S. Mid-Cap stocks. Read more ...

Elderly Couple Fooled the Stock Market

An amusing and true story from Denmark about the uninformed and irrational stock market. Read more ...

Elon Musk on Stock Prices

"It kind of sucks running a public company. The stock goes through these huge gyrations for seemingly arbitrary reasons and then I'm asked to explain why it changed ... and I have no idea!" - Elon Musk, CEO of Tesla Motors. Citation source: Video on YouTube.

Maersk on Stock Prices

"We never comment on our stock-price because we have no influence on it." - Mærsk Mc-Kinney Møller, Former Chairman and CEO of Maersk. Citation source: News article in Danish.

The Values of James Simons

YouTube video on the values of James Simons, founder of Renaissance Technologies.

Autobiography of Lars Larsen

Lars Larsen is the founder of the Danish retail chain JYSK. His autobiography is an interesting business case study. Read it in English or Danish.

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