Thursday, February 26, 2009

Maverick on Share Buyback

Talking Stocks « blog maverick
On the flipside, share buybacks are horrid for several reasons


It allows companies to manipulate earnings per share. Buy back enough stock, and you will hit your Wall Street expectations.

Companies will undertake risky cash management strategies to pay for the share buybacks. Since its one time, they can take greater risks

Companies will undertake buybacks with CEO and management incentives and bonuses in mind. Hit those numbers, earn lots of stock and options.

Companies will buyback stock so that they can re-issue it to themselves and employees. In essence they use the market as their personal and corporate piggybanks. They Buyback stock to push up earnings in hopes the stock goes up. Then they issue the stock to themselves. 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.

Stock buybacks are a very bad idea for investors and a very profitable idea for insiders and traders.

No comments: