The title of ‘Chief Executive Officer’ should really be changed to ‘Chief Capital Allocation Officer,’ because it’s the part of the CEO’s job that counts the most. Buffett famously pointed out that “after ten years on the job, a CEO whose company annually retains earnings equal to 10% of net worth will have been responsible for the deployment of more than 60% of all the capital at work in the business.” So, it is of the utmost importance that a CEO be a thoughtful capital allocator, because how they allocate capital will determine to a great degree how their shareholders fare.
There are, broadly speaking, four main ways for a CEO to allocate the capital (profits) available to him or her:
- Reinvest in the business for organic growth;
- Buy another business to grow inorganically;
- Pay down debt;
- Return capital to shareholders as dividends or share buybacks.
A good CEO will allocate as much capital as possible to growth initiatives (that is, 1 and 2 on the list), while also balancing the need to maintain appropriate levels of debt and the ability to return capital to shareholders. We are particularly appreciative of CEOs that take their own share price into account and allocate large amounts of capital to buybacks when they judge the share price to be too low. This is highly attractive for two reasons. Firstly, it enhances per-share values (such as earnings and dividends per share) to the greatest extent possible. Naturally, buying back shares at a low price maximises the number of shares that can be bought back. Secondly, it is attractive because it is indicative of an intelligent, thoughtful capital allocator who is not interested in building empires – they are interested in running good businesses and enhancing shareholder value. These CEOs are rare but fairly easily identified.
The table below highlights a sample of companies (and one investment trust) which have been buying back their shares over the past few years – and in quite large quantities. With the exception of Howden Joinery and Markel, who have bought back shares every year since 2015 and 2013 respectively, most of the companies significantly picked up their share buyback activity after COVID-19 – when many of them had depressed share prices and were trading at cheap valuations. (Berkshire Hathaway only really picked up its buyback activity in a big way in 2020.)
The quantity of shares bought back varies greatly. On one hand, we have DCC who bought back 2% of its shares this year – but will have bought back another 12% by January 2026, as it is returning £600 million of proceeds from the sale of its healthcare business. On the other side, we have Irish Continental, who has bought back 22% of its outstanding shares since 2019 (including 10% this year alone). Irish Continental also executed a large buyback in 2012, with 29% of outstanding shares bought back in 1 year.
These share buybacks have been highly beneficial for shareholders, as they are typically executed at low prices and have thus provided a significant boost to earnings per share. We estimate a boost of between 2-7% compound per annum for the companies above. We don’t have numbers for Berkshire Hathaway and Markel because intrinsic value is the key figure for these companies and that isn’t easily calculable on a historic basis – but we trust in the excellence of the management team’s capital allocation skills and have no doubt that intrinsic value per share has been significantly boosted for shareholders in these two companies.
Overall, we think it’s an impressive list, and evidence of the kinds of companies we like to cover for subscribers and clients, which are run by astute and thoughtful allocators of capital.
Thoughts on the Social Benefits of Buybacks
There’s often pushback from pundits that share buybacks are socially detrimental. And that can sometimes be the case – if investors extract cash from a business and leave it in a precarious position (e.g., unable to pay wages or service debt), then clearly share buybacks (or dividends) have been socially destructive.
Consider the case where a business has explored options 1-3 outlined above and found that it has no reinvestment opportunities, no M&A targets, and no debt to pay down. Naturally, it should return cash then – what else could it do with it?
In fact, restricting companies from share buybacks in this case is what would be socially destructive. Capital would build up on company balance sheets and just be invested in bank deposits or perhaps short-dated government bonds – or worse, the CEO might get a clever idea and acquire a bad business! Just witness the case of Japan, where CEOs refused to return capital to shareholders for decades. The negative effects included low returns on capital, inefficient businesses, low capital available for investment elsewhere, and depressed stock market valuations.
If buybacks were instead allowed to happen, the capital would be returned to shareholders who could then decide where to invest it. It is hard to see how this is socially destructive – when done right, it is beneficial to society as it maximises the efficiency with which the economy’s scarce resources are utilised.
There is probably a fallacy at play – pundits see capital “leaving the system” when shares are bought back by companies and conclude that the system is being starved of funds. But this is not the case at all: cash is simply transferred from one bank account (where a good use for it can’t be found) to another bank account (where the owner can use it as they wish). The amount of cash in the system doesn’t change in aggregate, it just changes location. It is funny to think of the opprobrium that buybacks attract and dividends don’t – when really they amount to the same thing!
We see opposition to sensible buybacks as nothing more than economic illiteracy, and well-informed investors should applaud this societally beneficial use of capital when they see it happening.
About GillenMarkets
GillenMarkets offers three distinct services. First and foremost, we are an investment advisory company that manages personal, pension and company monies for clients across the various asset classes. We also have a separate subscription-based website/newsletter offering for the do-it-yourself investor. A subscription to the members’ area of our website costs €299 annually or €240 if you pay monthly. See our membership offering here which includes a weekly newsletter posted online.
For those interested in learning more about saving and investing through the stock markets, we hold 1-day investment training courses at various times throughout the year. We also have an online version of the course which can be accessed in your own time and from pcs, tablets and mobile phones.
Alternatively, contact the office by email (info@gillenmarkets.com) or by phone on 01 2871400.
Darren Gillen
16th December 2025
