Why Stock Buybacks Do Not Help You At All - Mike Swanson (12/02/2016)
The Center for Study of Responsive Law held its second four-day conference on securing long-overdue democratic solutions in Washington, D.C. from September 26-28, 2016.
The above video was distributed by TheRealNews.com - a nonprofit organization. To donate to them go here.
William Lazonick gave a talk on Stock Buybacks and Executive Pay at this conference.
He is the author of one of the most important economic papers of the year: Profits without Prosperity published by the Harvard Business Review.
CNBC talking heads have promoted stock buybacks as being good for shareholders with the idea that when a company buys shares that are trading as part of the float that they make the stock go up by reducing the number of shares outstanding.
So the rise in the stock price benefits shareholders.
In reality though if you look at the data in order to accomplish this most companies are putting themselves deeper in debt by issuing junk bonds to finance the buybacks.
They also are not using the money to invest in their own operations and business expansion which is bad for the long-term health of the company and puts it at future risk of competition.
But CNBC people say that does not matter if you own the stock.
Well I have followed stock buybacks closely and many CEO's are using the rise in share price to dump their own holdings.
This has happened over the past year and a half with Apple for instance, because Apple board members have dumped over 16% of their own personal holdings while spending BILLIONS on buybacks.
Here is the real reason why buybacks do not help you if you are a shareholder:
All they really do is create short-term buying of a stock.
Yes this can help a stock over the course of a few weeks as the company does the buybacks.
But they have ABSOLUTELY NO IMPACT on where a stock is going to trade at 12 months later much less three or four years later.
So if you are a short-term trader yes it is true that buybacks can be your friend.
But if you are a long-term investor who is holding a stock they actually work against you!
Because they harm the long-term prospects of a company.
This is why CEO's use them for their own short-term selling purposes!
When buybacks happen all to often the CEO's SELL!!!!
They almost never buy more themselves!
Buybacks harm long-term investors even though CNBC talking heads praise them!
So what do you do?
When you see a company engage in massive buybacks it actually degrades itself as a long-term investment prospect.
So keep that in mind when you buy it or hold it.
What you need to do is focus then on the stock price action and use technical analysis charts and trends to decide when to buy and when to sell.
If the stock breaks down just get out.
Insiders are dumping these buyback debt operations and you should also be willing to sell too.
If this is the first time you have come to this website then get on my free action update list by clicking here.
Most Recent Posts
- Gold Upleg Momentum Building - Adam Hamilton (04/22/2017)
- Cramer Pumps Apple Yells Buy Demands You Chase Fad Big Cap Tech! - Mike Swanson (04/21/2017)
- Ted Galen Carpenter on Trump’s schoolyard strategy for dealing with North Korea - Scott Horton Show (04/21/2017)
- Marx, Orwell and State-Cartel Socialism - Charles Hugh-Smith (04/20/2017)
- The Libertarian Angle: Trump’s Attack on Syria - Future of Freedom Foundation (04/20/2107)
- The Second Donald Trump Administration - Mike Swanson (04/19/2017)
- Interview With Source Exploration - David Skarica (04/19/2017)
- Does Anybody Know What Our Russia Policy Is? - Ron Paul Institute (04/18/2017)
- Precious Metals Video Update: Gold Breakout & False Signals from GDXJ? - Jordan Roy-Byrne (04/18/2017)
- How Donald Trump Became a Tool of the Deep State - David Stockman Speech (04/17/2017)
Grab This Free Report: Our Top Mining Stock Pick
This free special WSW report is devoted to IDM Mining and why it is currently our top mining stock pick.
Grab it and get our next gold price entry point. Do not think about buying any other gold stocks before you read this report. To get this report click here