Are Share Buybacks Good? No, They’re Market Manipulation in Disguise
Sep 26, 2025
We don’t place much emphasis on P/E and similar metrics because they’re too easily manipulated. Want to improve the P/E? Simple—launch a massive buyback. Shrink the denominator, inflate EPS, and suddenly a mediocre business looks “cheap” on paper. The trick works even better when debt is involved: borrow at low rates, repurchase stock, and watch the optics improve. Earnings haven’t changed, products haven’t improved—but the P/E ratio looks fantastic.
This sleight of hand is one of the most common delusions in modern markets. It gives the illusion of progress while masking structural decay. Companies aren’t innovating; they’re gaming the optics. The crowd doesn’t mind. As long as the stock keeps climbing, they’ll cheer. Shareholders support the delusion, never questioning whether the foundation rests on manipulation rather than productivity.
This is not speculation—it’s well documented. Buybacks mechanically boost per-share metrics like EPS and ROE without changing the underlying business (Investopedia). Harvard’s corporate governance review has flagged this as one of the major dangers of buybacks—distorting accounting measures and fooling investors (Harvard Law). McKinsey has shown that repurchases boost earnings optics but don’t improve returns, making the supposed “value creation” more illusion than reality (McKinsey).
The Case Studies: When Buybacks Replace Innovation
Apple
Since 2012, Apple has spent more than $650 billion on buybacks—the largest program in history (CNBC). While its ecosystem is sticky and profitable, its radical innovation curve has slowed. EPS growth, however, looks stellar—thanks to fewer shares outstanding. Investors see “value returned,” but the underlying engine is financial engineering, not a wave of revolutionary new products.
Boeing
Between 2013 and 2019, Boeing spent $43 billion on buybacks (NY Times), even as it borrowed heavily and reduced its engineering investment. The result? A hollowed-out balance sheet and the 737 Max disasters—a direct consequence of prioritising optics over substance. The share price looked strong until the planes started falling from the sky. The market cheered buybacks while the product line decayed.
Defense Contractors
The U.S. defence sector has perfected the model: recycle old systems, slap on new labels, funnel cash into buybacks, and call it “shareholder value.” Lockheed Martin alone returned more than $160 billion to shareholders from 2000 to 2020—much of it through repurchases (RAND Corp). Meanwhile, the Pentagon continues to struggle to field working systems. Real innovation is sacrificed at the altar of financial engineering.
Tech Sector at Large
Alphabet authorised $70 billion in buybacks in 2023 (Reuters), and Microsoft continues to pump tens of billions annually into repurchases (MSFT Q2 FY2024 report). Both remain genuinely innovative, but the P/E optics are amplified by buybacks, making growth look smoother and cheaper than it really is.
Historical Parallels: Financial Engineering as Decay
This isn’t new. History is littered with civilisations and corporations that mistook financial sleight of hand for strength.
The Late Roman Empire
Rome’s decline was accelerated not just by external enemies but by internal decay. Leaders repeatedly debased the currency—reducing silver content in coins while pretending value was intact. It was a crude form of “buyback optics”: the illusion of money, without the substance. Just as today’s buybacks improve ratios without improving productivity, Rome’s currency tricks masked stagnation. Citizens bought the illusion until inflation and collapse made it impossible to ignore.
Japan’s Keiretsu Before the Crash
In the 1980s, Japanese conglomerates engaged in a different kind of financial engineering: propping up each other’s stock prices through cross-holdings, inflated land valuations, and debt-financed expansion. The illusion of unstoppable growth drove P/E multiples to absurd levels. Then came the 1990s crash, and decades of stagnation followed. Like today’s buyback mania, it was a case of optics over substance—shareholder value created on paper, destruction in reality.
The parallel is clear: when financial manoeuvres replace genuine innovation, decline follows. The empire weakens, the market stagnates, the crash arrives.
The Psychology of Buybacks
Here’s the deeper truth: the numbers matter less than the narrative. Experts, analysts, and financial media sell buybacks as strength—“returning value to shareholders.” The herd accepts it because it feels like a gift. It’s not. It’s debt-driven theatre.
The cycle plays out the same way every time:
- Experts sell the narrative.
- Investors believe the optics.
- Indicators (P/E, ROE, EPS) look stronger.
- The crowd chases the illusion.
And in the end, when the debt burden catches up or innovation stalls, the herd pays. They always do.
This is why, in our framework, mass psychology outranks mechanical ratios. A P/E can be hacked with a buyback. ROE can be inflated by shrinking equity. EPS can be massaged through accounting. But human behaviours—greed at tops, fear at bottoms—never changes.
The Lesson
Buybacks don’t answer the innovation question; they avoid it. The Roman emperors who debased their coins, the Japanese conglomerates who inflated valuations, and today’s firms gaming the P/E all share the same fate: mistaking illusion for strength. Narratives sell. Reality waits. And when reality returns, it doesn’t forgive.
As Confucius might murmur: “To see profit and not think of principle is blindness.”
And Saltykov-Shchedrin would laugh louder: “The people clapped while their pockets were picked—because the jingling sounded like music.”
That’s buybacks in a nutshell: illusions paraded as wisdom, with the herd cheering as their future gets hollowed out.
