04-27-2015, 09:14 AM
Cant read FT articles (sign up for 3 free article per month? Puh-lease!)
There are some buybacks which make sense...companies like Apple have been very smart about raising debt in the current environment (issuing bonds with almost next to nothing yields) and in EU no-less, which I thought was a great move. But for the most part, companies are simply resorting to buybacks to line the management's pockets. Its short term thinking that achieves nothing more than stock price gain and cashing out for execs who arent doing their jobs properly. If the company is really flush with cash, and there are absolutely no investing opportunities, why not issue special dividends? Granted that some amount of buyback is good for the company overall, but the pace and the fever pitch it has reached is insane imo, which has resulted in the indexes reaching all-time highs. Besides, history has shown that companies seldom announce and perform share buybacks when stock prices are cheap.
Here's a video from HBR that illustrates the point well.
https://hbr.org/video/4102770682001/the-...k-buybacks
So, the question you should be asking is: if the company is buying its own stock and execs/insiders are selling, should you be buying?
There are some buybacks which make sense...companies like Apple have been very smart about raising debt in the current environment (issuing bonds with almost next to nothing yields) and in EU no-less, which I thought was a great move. But for the most part, companies are simply resorting to buybacks to line the management's pockets. Its short term thinking that achieves nothing more than stock price gain and cashing out for execs who arent doing their jobs properly. If the company is really flush with cash, and there are absolutely no investing opportunities, why not issue special dividends? Granted that some amount of buyback is good for the company overall, but the pace and the fever pitch it has reached is insane imo, which has resulted in the indexes reaching all-time highs. Besides, history has shown that companies seldom announce and perform share buybacks when stock prices are cheap.
Here's a video from HBR that illustrates the point well.
https://hbr.org/video/4102770682001/the-...k-buybacks
So, the question you should be asking is: if the company is buying its own stock and execs/insiders are selling, should you be buying?