So ifyou wanted to generate cash from a transaction, you have no idea if you are selling into the buyback or not. No one knows when the buyback takes place. They may pay any price but the best price, and most likely they will, given how difficult it is to get the best tick.Ģnd. So they may try to prop up the price, unsuccessfully. All you know is that they cant sell at the end of the day. It doesn’t.įirst in a buyback, you have no idea what price they are paying, or why they choose to sell at a certain price. You are assuming that once a buyback takes place everything else stops in time.
*****below is in response to some emails and comments this post has been getting******** Stock buybacks are a very bad idea for investors and a very profitable idea for insiders and traders. Then if the stock goes up, they sell the stock they awarded themselves to unsuspecting shareholders who have no idea the money they are paying for shares is going to insiders. They Buyback stock to push up earnings in hopes the stock goes up. In essence they use the market as their personal and corporate piggybanks. Hit those numbers, earn lots of stock and options.Ĭompanies will buyback stock so that they can re-issue it to themselves and employees. Since its one time, they can take greater risksĬompanies will undertake buybacks with CEO and management incentives and bonuses in mind. Buy back enough stock, and you will hit your Wall Street expectations.Ĭompanies will undertake risky cash management strategies to pay for the share buybacks. It allows companies to manipulate earnings per share. On the flipside, share buybacks are horrid for several reasons It creates a precedent of rewarding shareholders, hopefully with increasing dividends. It keeps companies with legitimate dividends from going nuts. They have to consider the cash implications of each additional share or option issued. When a company pays a dividend, it’s much more expensive just to issue stock and options to insiders. It can put a cap on how much the company can dilute your holdings. It reduces your cost basis and rewards you for being a continuing shareholder Dividends are the investors’ best friend for several reasons: That’s why I am such a big fan of dividends. Shouldn’t continuing shareholders be rewarded rather than the sellers? The only certainty is that the seller has cash in the bank. Yes, I know that the stock price is supposed to go up for those who keep it, but there are no assurances that it will. It rewards people getting out of their investment, while not rewarding keeping the investment. More importantly, it rewards the exact thing that should not be rewarded.
This of course is completely contrary to every message that every company CEO, particularly Microsoft tries to send, that they are not trying to manage earnings or the stock price. If you buy back shares of stock, you reduce the number of shares outstanding, which in turn increases the earnings per share. If you buy stock in the open market, you help maintain the stock price. To stock traders, the buyback makes perfect sense. There is no better example of trying to manipulate earnings and stock prices than through the stock buyback, and there is no worse message to send to long term sharedholders than through the stock buyback. In addition to the special dividend, which I love, Microsoft announced a stock buyback, which I hate. That is if the money doesn’t find itself in the pockets of fund managers. It has the potential to have a definitive impact on the economy. It’s not inconsequential that at about 32 billion dollars, it’s the equivalent of $300 per USA household. Props to Microsoft for announcing a 3 dollar per share special dividend. I hadnt checked it again till just now…This isnt the most updated version, but at least its better. ******for some reason, my post got switched to an old file with bad information… I apologize.
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