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Why does a company buy back its own shares?

Your question raises the discussion of an interesting market strategy that affects share prices. For investors not familiar with a buyback program, it is just as it sounds - a strategy used by companies to repurchase its own shares in the open market.

Graham and Dodd, in their investment industry classic, Security Analysis, loved buyback programs. This quote reflects their views: "a company which buys and sells its stock advantageously, thereby increasing both the book value per share of the remaining shareholders and, in particular, the earnings per share, has an attraction that goes beyond the basic earning power." First and foremost, buying back shares usually results in stock price increase. But there is no guarantee that a stock price increase will occur, nor have a long-term effect. In today's technology-driven market and subsequent volatility, the share price may very well be out of line with its book value. Just as every corporation varies in management philosophy, so do the reasons for buying back company shares. Four key reasons for a stock buyback, also called stock repurchases, include: