Share buybacks -yes or no ?

[Captain Caveman]

Kudos, you hit the nail on the head. When a company buys back their stock they are saying, "Sorry, we don't have any acceptable capital investments for our profits, so we are throwing that money back to you, the shareholder." WTF? Why did you invest in the company to start with? It is a punt, plain and simple. And I got to tell you, if you bet on a team that punts after three downs time and time again you are going to go broke.

But there are a lot of things in play here. First, it used to be illegal for companies to buy back stock. It was considered price manipulation and it was specifically banned. Ronald Reagan changed that. Second, accounting firms used to be liable for the misstatement of earnings from companies. They approve the earnings statement of a company, and it turns out wrong, the accounting firm was responsible for the loss of capitalization. Reagan changed that too.

Then we come to executive compensation, at that is on Clinton. First, he reduced the capital gains rate, but second, he no longer required companies to account for stock options used in executive compensation. If the CEO takes office and the stock is 20 bucks a share, and he gets an option at that price, when the stock reaches 40 bucks he can sell. First, he pays capital gains tax, not income tax, on that gain. But second, and most importantly, the company, which pays the difference, doesn't have to record that liability on the balance sheet. Like, WTF?

One of my favorite stories, and I know I have provided them before. Business school, advanced Finance class, professor asks, what should be a company's primary goal. I jump all over it, I proclaim, "maximize contribution". The professor was like, "wrong". I was puzzled. Then some snot nosed little shit goes, "maximize share price", and the professor was like "correct". I flipped the fawk out. I was coming unglued. The professor recognized me and I just let it out, "You mean what is important is how much the people think a company is going to make as opposed to how much a company actually made?" And he was like, "Yeah, that is exactly it". I retorted, "Well, I just wasted 14 grand".

The solution is really simple. Stock buybacks, banned. Capital gains, taxed as ordinary income. Accounting firms, on the hook for mis-stated earnings, 100%. Stock options, a real liability that must be on the balance sheet. All that makes sense. Common sense.

What would you do if you were a PLC and you wanted to protect your share value, or if you wanted to improve your key financial ratios?

 

[Flopper]

My heart sinks when compamies I invest in do this.I rarely see the benefit in real terms..

Any reduction in the share capital has negligable effect on the share price or the dividend and it seems to be the act of a management that has run out of ideas.

I would prefer the cash and a new board of directors.

Do buybacks work for you ?

I consider company buy backs as being slightly positive. The company is investing in itself which I see as a good sign. This usually happens when a company has excess cash or when the company believes the market is undervaluing it's stock. Since it reduces the shares outstanding, the earnings per share will increase but the total earnings remains the same. However, I would buy or sell based on company buy backs.

 

[Flopper]

I consider company buy backs as being slightly positive. The company is investing in itself which I see as a good sign. This usually happens when a company has excess cash or when the company believes the market is undervaluing it's stock. Since it reduces the shares outstanding, the earnings per share will increase but the total earnings remains the same. However, I would not buy or sell based on company buy backs. Apple does this routinely.

 

[multivita-man]

It doesn't hurt the stock you own. In fact, I would think that it's to your advantage.

It pumps up the price, but over time, it exaggerates the value of the company, which isn't good.

 

[multivita-man]

I consider company buy backs as being slightly positive. The company is investing in itself which I see as a good sign.

No it's not; it's just reducing the supply of stock at the same level of demand -- at least at the time it makes the decision to buy it back. So ceteris paribus, it inflates the price of stock -- same demand, less supply. It hasn't done anything to increase the inherent value of that stock though. No extra sales. No revenue. No profits. No brand building. It's just taking supply off the market.

In short, it's bullshit. But hey, you do you.

 

[JohnDB]

Stock buy backs is a stock price support started when huge fund investors begin dumping their stock on the open market. Meaning that the big institutional investors don't see anymore potential out of the stock. So they begin taking profits and cost average the stock sales through a brokerage....
Because they are going to buy something else.

Now usually any stock on the market has 125-150% of the number of shares out there for sale. (Short sellers increase the number of stocks available....especially since naked shorts are now legal)

Buybacks are for when the stock begins free falling. Usually around 8% drops in price.

Also the announcement of stock buybacks are a major signal it's time to dump the stock.

 

[Flopper]

It pumps up the price, but over time, it exaggerates the value of the company, which isn't good.

Generally speaking, buybacks, spits, stock dividends, reverse split, and other changes in price due to changes in outstanding shares do not worsen or improve the long term investment outlook of a company.

 

[multivita-man]

Generally speaking, buybacks, spits, stock dividends, reverse split, and other changes in price due to changes in outstanding shares do not worsen or improve the long term investment outlook of a company.

Makes you wonder why they do it at all if that's the case, then.

Over time it's a negative. But that's something that's not going to be easily proven or disproven with a simple look at the historic stock price trends. Where that becomes more evident is that toward the end of a company's 'best days' and as it descends into malaise, stock price pumping becomes evident when a company has lost value. GE's a good example. Jack Welch pumped up its stock for years, but didn't do shit to improve the value of the company.

 

[JohnDB]

Makes you wonder why they do it at all if that's the case, then.

Over time it's a negative. But that's something that's not going to be easily proven or disproven with a simple look at the historic stock price trends. Where that becomes more evident is that toward the end of a company's 'best days' and as it descends into malaise, stock price pumping becomes evident when a company has lost value. GE's a good example. Jack Welch pumped up its stock for years, but didn't do shit to improve the value of the company.

Micron (makes memory chips for things like the next generation of cell phones) is somewhat of a "blue chip" of a tech company that actually makes a profit. (Unlike most tech companies)

And they have a buyback when another institutional investor dumps their stock.

They then later dump the stock when they get short on cash for plant upgrades.

Others will split their stock into more shares when they are growing. Some dont....like Amazon stock got really pricey for one share.....over $3k. Everyone was suggesting that they split. But these days you can do fractional purchases through your brokerage....so you don't have to buy a whole share anymore. And Amazon didn't split.

It's all games to keep the stock on the index trading and moving.

 

[multivita-man]

I won't say that 100% of buybacks are scams. There may be times when it makes strategic sense, but more often than not, it's just a scam to attract traders, enabled by a bullshit tax system that encourages speculation.

 

[Flopper]

Makes you wonder why they do it at all if that's the case, then.

Over time it's a negative. But that's something that's not going to be easily proven or disproven with a simple look at the historic stock price trends. Where that becomes more evident is that toward the end of a company's 'best days' and as it descends into malaise, stock price pumping becomes evident when a company has lost value. GE's a good example. Jack Welch pumped up its stock for years, but didn't do shit to improve the value of the company.

Apple has been doing this for many years and I don't thing Apple stockholders have much to bitch about. The stock has gone up from about 12 in 2013 to about 150 this month.

 

[CrusaderFrank]

My heart sinks when compamies I invest in do this.I rarely see the benefit in real terms..

Any reduction in the share capital has negligable effect on the share price or the dividend and it seems to be the act of a management that has run out of ideas.

I would prefer the cash and a new board of directors.

Do buybacks work for you ?

FFS!! Stop taking investment advise from The Banker

 

[Flopper]

It pumps up the price, but over time, it exaggerates the value of the company, which isn't good.

When the company buys it's own shares with excess cash, there is no effect on the balance sheet nor on the operation of company. It reduces the number of total shares outstanding so each shareholder owns a slightly larger percent of the company and the share price rises slightly. For long term investors it's a slightly positive event.

 

[multivita-man]

When the company buys it's own shares with excess cash, there is no effect on the balance sheet nor on the operation of company. It reduces the number of total shares outstanding so each shareholder owns a slightly larger percent of the company and the share price rises slightly. For long term investors it's a slightly positive event.

Nope.

 

[Flopper]

Nope.

Apple has done this many times and shareholders have done exceptionally well.

 

[Dadoalex]

My heart sinks when compamies I invest in do this.I rarely see the benefit in real terms..

Any reduction in the share capital has negligable effect on the share price or the dividend and it seems to be the act of a management that has run out of ideas.

I would prefer the cash and a new board of directors.

Do buybacks work for you ?

Buybacks artificially inflate the stock prince.
A small advantage for the stockholder but potentially a large return for management whose income may be based on stock price.

More importantly, as an investor, why would a company feel the need to artificially inflate stock process.
Generally stock price will reflect revenues, EBITA, and expected growth.
When a company goes on a buyback I see it as a warning of future issues.

 

[Toddsterpatriot]

Buybacks artificially inflate the stock prince.
A small advantage for the stockholder but potentially a large return for management whose income may be based on stock price.

More importantly, as an investor, why would a company feel the need to artificially inflate stock process.
Generally stock price will reflect revenues, EBITA, and expected growth.
When a company goes on a buyback I see it as a warning of future issues.

Buybacks artificially inflate the stock prince.

What is artificial about it?

 

[Dadoalex]

Buybacks artificially inflate the stock prince.

What is artificial about it?

try reading the 4th line of the post to which you responded.

Stock prices reflect value of the company based on revenues, EBITA, potential for growth
NOT the availability of the stock itself.

 

[Toddsterpatriot]

try reading the 4th line of the post to which you responded.

Stock prices reflect value of the company based on revenues, EBITA, potential for growth
NOT the availability of the stock itself.

NOT the availability of the stock itself.

Hilarious!

 

[Dadoalex]

NOT the availability of the stock itself.

Hilarious!

Then go buy based on buyback promises.

They will love you for it.