All company chairmen think the stockmarket undervalues their shares but however good they are at running their business, those directors have proved themselves very bad fund managers. They buy shares at the top – and then often sell them at the bottom.

Marks & Spencer has joined the list of companies that ought to stick to its day job of selling socks and salads. Now that its shares have plunged by two-thirds it has suspended its buy-back programme, having purchased 8 per cent of its own equity at prices well above the market price.

Buy-backs have been the fashion for corporate financiers in recent years at companies with more money than they know what to do with. It is booming business conditions that generates the necessary cash and it is booming business conditions that support a bull market in shares, but that inevitably means companies are buying their own shares when they are expensive.

M&S has far more justification in buying its shares at current prices than when they were a pound higher. The reason it has suspended the buy-back programme is because trading is poor, profits are falling and it needs all its available cash to pay its conventional dividend.

But a conventional dividend is a far fairer way to return cash to shareholders. It ensures all investors receive their pro-rata share of the surplus capital. Buy-backs go only to those institutional shareholders in the market ready to sell: by the time a small investor knows their company is buying it has already bought.

In fairness, when M&S launched a buy-back after repelling Philip Green’s 400p takeover proposal four years ago it did so by tender to allow all shareholders to participate (though because the price was unknown most small investors found it too complex to participate). That is the tax-efficient and fair way to buy-in shares however.

Chairman launch buy-ins in a belief it will boost their share price but there is little evidence of such an effect. Certainly, in a falling market, buy-backs throw away good money.

In the worst case, we have seen companies like Cable & Wireless buy-in shares at the top of the market then seek to replenish their capital by offering new shares at a far lower price. It would be better if boards concentrated on their main business rather than tried to play the stockmarket.

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