Stock Buybacks? Opinions?
 

Thinking out loud:

While I do not pretend to have any level of sophistication when it comes to the stock market -- or anything else for that matter -- I do have a limited knowledge and I know what I like. (Although -- I do remember seeing the housing crisis coming, long before it hit. Instinct? Gut? Remembering my hard lesson from the tech bubble in the 90s? Whatever?)

Mere bumpkin though I may be, I have to say that stock buybacks lately are bothering me.

I think a surge of buybacks can create an artificiality in the market. I would much rather have solid, increasing dividends, underpinned by actual earnings and reasonable payout ratios. (Yes. I am boring.)

But what do I know. (sigh)

Meanwhile, I will continue to tend the moat, maintain the buffer zone, while I wait for the inevitable.

Any thoughts out there on buybacks, etc.?

You're reading my mind, very concerned about market. History repeating itself?????

You need not apologize
 

From my dad when I was far younger and knew it all. Part of knowledge is knowing that you don't know.

Investment advice. First question to ask is what is the motive of the person giving you or selling you this advise.

I any bull market, everyone is an expert. We all tend to forget the market, like housing etc does not always go up.

Also, when it comes to money, few people know their net worth and far fewer would tell you if they do. Remembering way back to 2008. Poking fun but IT WAS ONLY TEN YEARS AGO. We saw a scarry correlation EVERYTHING WENT DOWN except for cash and gold.

What to do is the question. THE ONLY TRUE ANSWER IS BEATS ME. Buffet the investor god. If I recall it said he lost 45 million in 2008. His comment was it was not a good year for him.

Do not dare to think as many do BUFFET LIKE. You are a prawn-bait for the sharks like Buffet. Ypu are not even invited to trade in the same market where Buffet buys and sells.

I look at Buybacks as a short-term price bump opportunity, nothing more.

I'm a long-term investor. Short-term opportunities don't make me jump. Either I want to be in the stock (or stock market) or I don't. I'm always in.............just a matter of what I'm in.

If a company does a buyback, they are assuming the stock value will increase. If the stock is going to drop, why buy it back and create a compounding effect??

If you need the cash, jump on the buyback.

I personally like stock buy backs. What it tells me is the leadership of the company believes that the value of the company is going to increase and that they have excess cash available. What better inside information could you get.

The surge in stock buy-backs is in very large part due to a choice being made by corporations with what to do with their tax break money.

Federal corporate tax receipts fell from an annualized level of $409 billion in Q1 2017 to $269 billion in Q1 2018, a direct result of the Trump tax cuts

The promise was this cash would boost workers' income and be invested in innovation and machinery.

Corporations had prior to the enactment of the huge tax break made very clear that they intended to use the money for stock buy-backs and debt relief, not to help workers or invest. See here and here.

But the short term stock holder does not benefit from long term investment and the corporation is there to serve its stockholders which of course includes the board of directors. So use the cash to buy your own stock, this raises the "value" of the stock but does nothing for the worker or the long term success of the business.

Hey, everybody, thanks for the discussion. My original post has been sitting on the shelf for a week and a half.

And, btw, poster #3, please, no need to yell at me. (all those all-caps) My writing can tend to have a bit of a hyperbolic bent sometimes. I am not really a novice — but, even so, especially so, I would never yell at a novice who wants to talk about thoughts on investing. (And I am not yelling at you, just a little reminder about those all-caps.)

We could be headed for a buying opportunity. (euphemism) CD rates are creeping up. Inflation is the big elephant in the room — well, one of them anyway. I think the market feels skittish and unreal, artificially high with buybacks.

(blueash, I know what you mean. It is a big picture. A house of cards?)

Those stock buybacks are being paid for by deficiet spending, money taken from our grandchildren’s future earnings. Sad

. . .

Knowledge
 

A large part of knowledge is knowing and admitting that you don't know something.

The sale of investments with all of it's rules and assumtions makes us ripe for the picking.

Share buy backs. What does that mean? Like most things the answer is it depends. When a company buys it's own shares they are not necessarily destroyed-likely they are not. The company can elect to hold those shares and then put them back on the market for things like management incentive programs etc.

You can easily determine if the outstanding share count goes down-very few of of prawns do. DEFINITION OF A PRAWN-we people that the sharks feed on.

Re; you would rather have dividends
 

As to whether to increase dividends or do a share buy back.
First thing you need to realize is that the company is not run for or by you. You get the right to vote your shares. First few people do but you can bet the large share holders do.
You hold say 100 shares of xyz stock and you vote your shares not to increse the salary of the CEO. OK. Likely the CEO ownes a huge number of shares-far more than you do.
On top of that he/she likely got many of their shares NOT PAID FOR, as management incentives-stock awards.

If, you need or want dividends, or any othr investment goal you should regularly review the stocks you hold and decide if they still fit your needs and goals. Several obvious examples
KODAK has gone out of business. Polaroid-has gone out of business.GE is currently worth less than half of what it once was. Due to GOVERNMENT action-interest rates on CDs and bonds and TAXES, we have little choice but to invest in the stock market and for some real estate. How quickly we have forgotten lessons of only ten years ago.
Stocks and real estate do not only go up.

Public companies have a fiduciary duty to maximize vale to the owners of the company (the stock holders). When a company has excess cash they basically have five options. 1) Increase their cash reserves for future opportunities (usually not the option of choice), 2) re-invest the money into the company if management views future return on investment opportunities favorably (typically done with growth versus mature companies), 3) use the money for mergers/acquisitions if they believe opportunities exist that will enhance shareholder value, 4) to pay out dividends to shareholders (typically more common with mature versus growth companies), 5) to buy back outstanding shares of stock (typically done when management believes the stock is undervalued or when the other options are less likely to maximize shareholder value). Another factor to consider (always follow managements financial incentive) is how management is compensated. Management is often paid huge annual bonuses based on a companies short term performance, including stock price, and is often paid in shares of stock. Re-investing in future growth is a longer term strategy to maximize value, while stock buy back programs are a short term strategy. Selling a stock after a jump in price following a buy back program can be a good idea as it is often a sign of weak future growth prospects.

I share the view of other posters in this thread that the market is currently overvalued and that it is at risk of multiple very dangerous bubbles popping. Has anyone read the book the Aftershock Investor, written by Weidemer and Spitzer? Very scary and hard to argue with. Our federal deficit and associated debt, which continues to grow rapidly, is the most toxic of all bubbles.

Excess cash in the companies' coffers is the reason for buy backs. I'd prefer the management of any company either invest the cash to expand existing operations if a healthy ROI ( return on investment ) is available , invest in R&D to develop new organic opportunities, or thoroughly explore " Merger and Acquisitions " possibilities even if it means management will have to go by the wayside. The cash should be put to use to generate a return greater then available by simply investing same.

I agree, I am pretty conservative as well; Apple, VISA, etc., however I went to a workshop at Schwab in the Villages a year or so ago and really enjoyed it. Does your brokerage offer anything like that?

It depends. Sometimes it is in the best interest of the company and the shareholders such as when the company's stock price is relatively low. However when buybacks occur at peak market prices they may be improvident.

As a shareholder I am happy to see Berkshire Hathaway buying back some stock at this point in time.

I think the pre-crisis DJIA high was in October of 2007.

The big fall was in 2008.

This bull market is usually measured from March 2009.

As the market led up to the fiasco of 2008, I remember thinking that the housing boom was a house of cards. It got downright stupid.

(And then everybody in high places seemed so surprised. I have never understood how some old high school teacher in the Midwest could see it coming but they did not.)

I am not claiming to be some kind of savant or to have any qualifications whatsoever. But for what it is worth, I think our long bull market, post-corporate tax cuts, has been basically a bull$#*% market.

I have a long held comfort zone with making my own market decisions. But I strongly believe that unrestrained greed is not good for the economy.

Back to the thoughts on stock buybacks: I still don't like 'em.

And I sure don't see this current market offering me any buying opportunities. (euphemistically speaking)

Anybody else keeping an eye on the old bull? Thoughts?

Stock buybacks fueled by adding to the national debt sure do feel good if your investments are growing and money is rolling in. One must keep in mind that when the music stops you might not have a chair to sit in.

Paper1,

Musical chairs. What a perfect analogy.

I always talk about building and tending a moat, but I like your comparison better, even though we are saying the same thing.

:bigbow:

Too many to cover in one post, but here's a few...of my own observations/opinions.

1. I'm an 'Oracle of Omaha' disciple and believe in holding for the long haul...even though it can be tough on the ticker in the short run. After seeing an almost 2-1/2 times increase in the DJIA between the low of early 2009 and 2016...I'm glad I hung on.

2. I too am against stock buy-backs, even when they personally benefit me...as I think they are bad for our country in the long run. Particularly, since the current system rewards upper management for a short period of their company's stock price and almost compels them to do whatever is good in the short run...as then they can make their killing now if they're later replaced. The old "instant gratification/I got mine, forget you" attitude...if you will.

If laws required their remuneration/pay package to be based on say a three year average, we might see actions being taken that strengthen the economy/company...for a longer period of time.

3. Since just a little over 1/2 of Americans even own stocks, the idea that those who benefit the most from tax cuts, or loose corporate regulations, allowing companies to increase their profits for the short term will eventually allow some bread crumbs to 'trickle down'...I find ludicrous.

https://www.politifact.com/california/statements/2018/sep/18/ro-khanna/what-percentage-americans-own-stocks/

4. Recent tax cuts; Too political to address, but so far...I'm certainly not seeing what the proponents were touting. :ohdear:


Even with the recent market(s) volatility, I'll still sit tight and just keep telling myself that..."I don't lose anything, if I don't sell."


Sadly, not everyone has that luxury. :(

Yep. :thumbup:

Re: Presentations
 

Here, or perhaps, I have more time to be aware of it, you can go to a presentation such as the one you attended from Schwab almost every week. Often you get a,"free meal." Like perhaps, real estate partnerships that were the rage for vacation resorts a few years ago. Remind yourself, you get nothin for nothin. If, anyone says you must act now, don't walk but RUN away. Today it is so easy. Take the time to read and explore competing ideas to what the SALESMAN-speaker is saying. Do not be intimidated if you do not understand what the speaker is saying. At any of these presentations, there a many people that done't understand what is being said. Step back and see first of all what is being said may not be TRUE. The speaker may not even understand what he is saying. Surely others attending
may not even know that they do not know what is being said and even worse some think they know but do not know that they do not know.

SIMPLE MATH THAT FEW SEE-COMPOUNDING WORKS UP AND DOWN. Example if you have 10,000 invested and the first year you make 10%. The next year you loose 10%-you have LESS than 10,000 not even-a net loss 10,000+10%=11000 11,000-10%=9900-HUH? On top of that we forget brokerage fees and you likely paid tax on that $1,000 if it was in a fund.

Never allow yourself to forget that you are a PRAWN-bait for the SHARKS.

Wow so many thoughts
 

#1 Re: Buffet
That thought Buffet like. I don't know about you but I recall reading Buffet said he lost 45 million in ????? 2006. Hum-I don't know your situation but I doubt anyone in their right mind would
believe I have 45 million to hold, lend, spend. Buffet and holding long term. The man is if I recall 86. Long term-HUH?
#2 Re: stock buybacks
The truth is understanding stock buybacks is far too complex for most-INCLUDING ME. Usually the company bought shares are not destroyed they show as a company asset. A bit of, my term, slight of hand. Those shares can and are used for dividend payments, management incentives,when stock is used to purchase another company etc. A stock buyback is widely published. Spending those shares is not.
#3 Re: only half of Americans own stocks
Not nearly that simple. First of all assuming that some people THINK they own no stocks. If, they have a pension, there pension is surely invested in stocks. If, they give money to support a school a charity it is in stocks. If, they paid for insurance, it is in stocks. There have been proposals that people be allowed to invest their own social security money into the stock market. HUH? Same as our not so long ago housing collapse, people would expect the government-their fellow citizens to pay for their mistakes. To tax those who did well, took appropriate risk (whatever that is) and give to those who perhaps decided to take more or less risk than they should have.
#4 Re: politics
Unfortunately it effects everything and everybody. A simple view. I view government as a NECESSARY EVIL. My thoughts apply throughout world history. Everyone wants. Everyone comes up with what they truly believe are valid points why someone else NOT THEM, should pay. Too often I hear people say the government should pay for that. This is government of the people, for the people and by the people. In plainspeak let the government pay for it is my neighbors NOT ME, should pay for it.
#5 Don't loose anything if I don't sell
That is MIND CONTROL. Reminder all the information we have comes form people with a vested interest. Simple math that our mind does not seem to fathom. If you start with 10,000 and your statement shows you are up the first year by 10%. The next year you are down 10% YOU ARE NOT EVEN
10,000+10%=11,000. 11,000-10%=9900-HUH WHERE DID $100 VANISH TO? On top of that assuming it is in a taxable account you not only have less but you paid tax on the non-gain.

Since Buffet has already arranged to give away the majority of his vast fortune, your point is invalid...and a bit disingenuous.

Buffett's Charitable Contributions While $45M is definitely a lot of money to most of us, you totally fail to take into account what % of his total assets/net worth...this actually represents. Analogous to those who confuse, or can't understand, the difference between weather...and climate.

Not to mention, you also fail to recognize that the 'long haul' means just that...including 'short-term' losses/reductions.

Methinks the BIG picture of Buffett's EXTREMELY successful lifetime investing strategy...more than speaks for itself.




While there are numerous reason for stock repurchase, those reasons are far from being too complex for the average person of even a modicum of investing knowledge...to understand.

Here's a link that might help you understand it a little better.

Stock Repurchase (click here)


While I now realize the link I first gave didn't work unless you took the effort to put all of it into the search bar...this one should work.

Click Here

If you take the time to read the link, it fully recognizes and includes the various methods...that American's may 'indirectly' own stocks.



To protect the thread, I will pass on this one.

Please be assured though...I DO have a few political thoughts. :D




"MIND CONTROL?" :1rotfl:

Sorry, but my original statement applies. Particularly since I don't hold any accounts that are taxable...until I sell.

I don't "LOSE" anything...unless I sell.


:ho:

Alan Greenspan chimed in this morning.

Corporate America is an investor with idle cash:

Buy Low, Sell High.

I doubt they will Buy High.

It appears they did...........neither of us will know for the next couple of years. I'm betting prices will increase in the next couple of years.

My money's on your assessment, DEW.

The Fed will be making an announcement sometime this morning, I think.

“There are more factors in this than just the DJIA,” said Boomer, stating the obvious.

Second verse same as the first?
 

I wonder if we will see more of those corporate buybacks this week.

How's it look today?

One good day does not make a market recovery. It's common to have a "Santa" rally.

Last 12 months of DJIA...

You are obviously very cognizant of the market. Isn't it common at years end and beginning to have more peaks and valleys?

GOOGLE (Click Here)

What could have been driving the market yesterday?

A) Big Institutional Buys

B) Corporate Buybacks

C) Kenswing and me going shopping on Monday and early yesterday


Hint: Two of the above — or maybe one

:1rotfl::1rotfl: C?

What do you think? Do you recall ups and downs at the end of a year and the beginning of the next? I was looking for YOUR opinion based on the information YOU gathered from Google.