A company that buys back its own shares, year after year, until it has eaten a large part of itself.
A company is owned by its shares. When it buys some of them back and cancels them, the same business is split among fewer owners. Nobody had to buy anything, yet every remaining share now owns more of the profit, the cash and the dividends.
Retire a quarter of the shares and each remaining share owns 1.3 times as much. Half of them, twice as much. Three quarters, four times. Ninety percent, ten times. The effect is small at first and enormous at the end, which is why it only shows up for investors who stay long enough.
The full list, ranked and updated every Monday, is on the leaderboard.
Three questions decide it. Does the share count actually fall, or do buybacks only replace stock given to employees? Is the company paying less than the business is worth? And is it paid for with cash the business earns, not with debt it cannot carry? Each company page here shows the share count, what the buybacks cost and the price paid, so the first two can be checked in a minute.
A company that buys back its own shares so steadily that it eats a large part of itself over the years, often a quarter or more of its share count in a decade.
Charlie Munger used it for companies that keep buying back their own stock, and investors have used it ever since.
Every share retired makes the remaining shares a bigger slice of the same business. If half the shares disappear, each one owns twice as much.
When the company pays more than the business is worth, borrows recklessly to do it, or only buys back the shares it hands to employees, so the count never falls.
Cannibal Stocks finds them early and writes about them every week.
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