> why the stock buybacks are necessary when investment in the business is going down
The business theory answer is that buybacks are used when there is no better investment opportunity.
Let's say the stock trades at 10 times earnings. Can you fund an internal project that's going to return 10% a year? [0] Can you buy another company that will return 10% a year? If not, then a buyback gives the best return to the company's owners (aka shareholders) because they owner larger slices of the same pie.
[0] Plus a small cushion for risk. And not just "we project this will return $HUGE amount" but something that can realistically happen.
So, basically, when a company buys their own stock back (or issues a dividend), they are saying "We can't think of a single thing better to do with this money than simply hand it back to investors who might be able to put it to better use!" Doesn't give me a lot of confidence in the company, to be honest.
Why? The company is good at what it does. It generates money. Someone else is expert at something else, but needs capital. Why do you need one company to do everything on Earth?
Warren Buffet's wealth comes from finding companies who are good at what they do, and moving money from ones with excess cash to those that need more cash.
Would you rather put your money or capital into a company that promised to never do buybacks? To never, ever give you a return on your investment? Why would you buy that stock? Why would anyone ever buy that stock from you?
The business theory answer is that buybacks are used when there is no better investment opportunity.
Let's say the stock trades at 10 times earnings. Can you fund an internal project that's going to return 10% a year? [0] Can you buy another company that will return 10% a year? If not, then a buyback gives the best return to the company's owners (aka shareholders) because they owner larger slices of the same pie.
[0] Plus a small cushion for risk. And not just "we project this will return $HUGE amount" but something that can realistically happen.