A company can report that its earnings per share jumped, while the business itself earned no more money than the year before. Nothing was invented, no new customers were won. The company simply bought back a chunk of its own stock, and the same profit, divided among fewer shares, looked bigger per share.

This is the share buyback, and it is now the single largest way companies hand money back to shareholders. American firms spent more than a trillion dollars on it in a single year, more than they paid in dividends. Much of that demand propped up the very stocks sitting in the reader's index fund.

The machine we are drawing is that buyback, and the arithmetic trick inside it. Done with genuine spare cash, it is a sensible way to reward owners. Done to dress up the numbers or funded with borrowed money, it can flatter a company that is quietly standing still, or shrinking.

Buybacks have swelled to a scale that dwarfs dividends. In a recent twelve-month stretch, companies in the S&P 500 spent about $1.02 trillion repurchasing their own shares, a record, against roughly $665 billion in dividends. Buying back stock is now how corporate America mainly returns cash.

But a telling shift is underway. In early 2026, as companies poured money into artificial-intelligence projects, buybacks stalled while that investment spending surged. Two of the largest technology firms stopped buying back stock entirely for half a year to fund their AI build-out, a sign the buyback is the first thing cut when real investment calls.

Why this reaches the reader: buybacks are a massive, steady source of demand for the stocks he owns, which helps lift prices. But the same mechanism can inflate the earnings figures he relies on to judge a company, so a rising number per share does not always mean a healthier business underneath.

Before you place another trade...

...make sure you use this 5-part formula that makes every trade a SAFE trade:

Why are we giving this away?

Because we think you'll love it so much that you'll come back to us down the road for more advanced training.

Make sense?

Click here to download the Safe Trade Options Formula...

Good Trading,
Bill Poulos

p.s. Take 5 seconds and get your free copy of the "Safe Trade Options Formula" right now before you close this email.

Start with earnings per share, the number Wall Street watches most. It is simply the company's total profit divided by the number of shares outstanding. There are two ways to make it rise: earn more profit, the hard way, or shrink the number of shares it is divided among, the easy way.

A buyback shrinks the shares. The company uses its cash to buy its own stock on the open market and cancels it, so the same profit is now split across fewer pieces. Cut the share count by 5%, and earnings per share rise by about 5% on their own, with no change whatsoever in how the business is actually doing.

The load-bearing part is that denominator. Because earnings per share can be lifted just by reducing shares, a buyback is a lever on the headline number that has nothing to do with operations. A company whose actual profits are flat, or even slipping, can still report rising earnings per share simply by buying back enough of itself.

Now follow the incentive. Most top executives are paid partly on hitting earnings-per-share or share-price targets. A buyback helps hit those targets directly: fewer shares, higher per-share number, bonus unlocked. The people deciding whether to buy back stock are often the people whose pay rises when they do, which is a powerful nudge regardless of whether it is the best use of the money.

Here is where it can quietly endanger a giant. The cash spent shrinking the share count is cash not spent on research, new factories, or hiring. And some companies borrow to do it, taking on debt purely to buy their own stock. That is not returning spare money to owners; it is leveraging up the company to manufacture a better-looking number, leaving it thinner when hard times come.

The first joint is the illusion in the headline number. Because a buyback lifts earnings per share mechanically, an investor who trusts that figure can overpay for a company that is not actually growing. In fact, in a typical quarter only a small fraction of big companies shrink their share count enough to matter, while many buybacks merely offset the new shares handed to employees as pay. The reported growth can be mostly optics.

The second joint is the debt-funded version. When a company borrows to buy back stock, it swaps a permanent obligation, the debt, for a temporary boost to its share price. In good times no one notices. In a downturn, the company is left carrying extra debt it took on not to build anything, but to flatter its stock, and that leverage bites hardest exactly when earnings fall.

The third joint is the forgone future. Every dollar spent on a buyback is a dollar not invested in the business. When buybacks are breaking records, it can mean companies see little worth building and would rather shrink their share count than grow. The recent pivot, cutting buybacks to fund the race to build artificial intelligence, is the rare case of real investment winning, and it shows how often, in calmer years, it does not.

What persists: the legitimate use, which is genuinely good for owners. When a company has real surplus cash and its stock is reasonably priced, buying back shares is an efficient, tax-friendly way to return money to shareholders, often better than a dividend. Used with spare cash and honest intent, the buyback rewards long-term owners cleanly.

What can break: the trust in the numbers, and the balance sheet, when buybacks are used to manage earnings or are funded with debt. The same lever that rewards owners can disguise a stagnating business, enrich executives for hitting engineered targets, and load a company with borrowings that have nothing to show for them. The tool looks most impressive, record buybacks, soaring per-share numbers, right when it may be hiding the least growth.

This machine connects to two others the reader's money touches. It is a primary engine of demand beneath the stock prices in the index funds we have traced, buying back shares by the trillion, and it rests on the same corporate borrowing markets, when it is debt-funded, that run through so much of the system. The buyback, the earnings number, and the share price are three links in one chain.

The next reading arrives with each quarter's buyback totals and the tug-of-war between repurchases and investment. Those will show whether companies keep manufacturing growth by shrinking themselves, or whether the demands of building real things finally pull their cash away from propping up their own stock.