Yeah, It's Still Water
October 25, 2019·25 comments
Companies are generating real earnings growth and massive free cash flows, yet they're investing almost nothing back into their business. The paradox deepens when you examine where that money actually goes: not to workers, not to innovation, not to long-term capacity, but to one place. The question is not whether this is happening, but whether we've stopped noticing it's happening at all.
- Real cash is being generated but real decisions aren't being made. Texas Instruments generated $25 billion in free cash flow over five years while spending only $3.3 billion on factories and equipment. That gap isn't an oversight. It's the strategy.
- The buyback narrative masks a wealth transfer that's become invisible. When a company buys back its own stock at higher prices while simultaneously issuing shares to executives at lower prices, something is being hidden in plain sight. The math reveals that 40% of one company's buybacks were used to neutralize compensation to its own leadership.
- Management is being rewarded at a scale that has no historical precedent. A single executive team extracted $6.2 billion in stock value over five years while their company performed identically to an index fund. This isn't about merit or market forces working correctly.
- The system is self-reinforcing because everyone involved benefits from it. Board members approve the buybacks that enrich executives who control their reelection. Shareholders don't complain because the stock price rises. Institutional investors say nothing because everyone else is silent.
- The question that matters is whether this is sustainable as a model for organizing an entire economy. If every public company optimizes for management enrichment rather than future growth, what happens when that becomes the only game in town?
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This commentary is being provided to you as general information only and should not be taken as investment advice. The opinions expressed in these materials represent the personal views of the author(s). It is not investment research or a research recommendation, as it does not constitute substantive research or analysis. Any action that you take as a result of information contained in this document is ultimately your responsibility. Epsilon Theory will not accept liability for any loss or damage, including without limitation to any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Consult your investment advisor before making any investment decisions. It must be noted, that no one can accurately predict the future of the market with certainty or guarantee future investment performance. Past performance is not a guarantee of future results.
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