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.