Many companies buy back shares to boost returns, but Stock-Based Compensation (SBC) can quietly cancel out these buybacks by increasing the total share count — which lowers your stake and real earnings. Smart investors subtract SBC from Free Cash Flow and avoid companies where SBC exceeds 10% of net income, following the example of legends like Warren Buffett and Mark Leonard, who reward performance without diluting shareholders.
Great breakdown on SBC and its hidden cost. One thing I’d add, not all stock-related compensation is the same. I really like Employee Stock Purchase Programs (ESPPs) because they make employees put skin in the game. They buy shares (often at a modest discount), so the company gets cash and employees still have upside. It’s a gentler form of alignment than “free” stock grants, and it keeps dilution much more contained.
Great breakdown on SBC and its hidden cost. One thing I’d add, not all stock-related compensation is the same. I really like Employee Stock Purchase Programs (ESPPs) because they make employees put skin in the game. They buy shares (often at a modest discount), so the company gets cash and employees still have upside. It’s a gentler form of alignment than “free” stock grants, and it keeps dilution much more contained.
Hi Tudi,
100% correct. I love seeing the progress you've made in investing over the past 2 years. It's remarkable!
Great article!
Thanks, Gabry. It’s a true honor!