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December 17, 2007


Bill aka NO DooDahs!

The people who benefit the most from share buybacks are share-SELLERS, because they get the cash of the company directly.

Possibly a key metric to examine would be the intersection of insider selling and share buybacks. Centex was a poster-child for this not too long ago ... the management-approved buyback amounted to a transfer of money from the company and to the insiders whose shares were bought by the company ...



Thanks for the comment.

I agree with you completely that it is a form of transfer. I tried not to be too cynical because for one I have a tendency to do that, but also I didn't want to harp on whether it is right or wrong, or imply too much wrongdoing, because at the end of the day, shareholders seem to not care as long as stock price increases. Therefore, I tried to focus on why this increase is not good regardless of management's intent and is not good for long term investors. I left out the example where management acts in an unscrupulous manner for that very reason.

In fact, I expect that management is acting in its interest and assume that they are lying to me when I buy a stock. Earnings management (or manipulation) is detrimental to long term investors as it creates more information asymmetry and allows those who know the actual deal to be at an advantage and do not allow the most important vote a shareholder has - a sell ticket - to be exercised properly.

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