Some snippets:
Corporate insiders have impeccable timing when buying stock for their own accounts. When the ratio of insider buying to selling is higher than normal at many companies at the same time, it tends to be near a market low.
That was the case in late 2008 and early 2009, toward the end of the last bear market. The ratio was at historically high levels for months, just before stocks tripled, according to Vickers Weekly Insider, a service that tracks such trading.
But when bosses authorize buybacks — buying stock on behalf of their companies, not themselves — they show nothing like the same foresight. The $617 billion that companies in the Standard & Poor’s 500-stock index spent on buybacks in the 12 months through January 2008 was the highest amount in the nine years for which the research firm FactSet has compiled such data.
That was just in time for the worst market decline since the 1930s. The following year, a more auspicious time to accumulate stocks, buybacks totaled $353 billion.
“Insiders, when buying for themselves, are not looking at the present; they’re looking at the future. Buybacks are done for the present; cash flow is high, so they use it for buybacks. That drives them in good times and bad.”
Buybacks tend to be done late in an uptrend because that’s when there are fewer attractive alternatives for spending money and the greatest need to lift earnings. But that’s also when stock valuations are high. If companies borrow to accomplish their buybacks, as many do, it leaves them even worse off when the cycle turns down because they have more debt on their books, he added.
I have never been much of a fan of share buyback programs. I have seen enough cases in which these programs were abused, for instance :
- A share price was "defended" at some artificial price level. When the money for the share buyback program ran out the share price crashed, not unexpectedly. The company should have let the share price going down, enabling it to buy shares at a cheaper price, for the advantage of all remaining shareholders.
- An aggressive share buyback program exactly at the moment that insiders are selling the share. There is the perception that the share price is artificially supported, enabling insiders to receive a higher price than they otherwise would have.
Share buybacks have been invented in the US, having had a double taxation on dividends.
Asian countries don't have this double taxation, so they can freely distribute excess cash in the form of dividends. There is here actually not much need for share buybacks (with this being a possible exception).
I prefer dividends over share buybacks:
- Dividends are much more transparent, an overview of the dividends paid out in (say) the last ten years is pretty straight forward in evaluating a company.
- Share buybacks are distracting, both for the management which has to execute it (dealing on a daily basis with price and volume), and for the shareholders who have to evaluate it in combination with the dividends.
calvintaneng
Insider Buying Is Far Better Than Company Share Buy Back
After the 2007/2008 Market Crash I saw IJM Directors loading up on IJM Shares around RM2.40. So I just followed. Today IJM is over RM13.00 (after split RM6.50)
Same goes for BJ Corp when TSVT Bought & Bought BJ Corp in year 2006 at 9 cents all the way to 50 cents before Goldman Sachs joined in. BJ Corp later shot past RM1.50.
Last year I saw all Directors/Insiders With Concerted Effort Bought & Bought TN Logis Shares at RM1.50. They saw what we the outsiders could not see as yet. So I just bought 3,000 shares for a test case.
And TN Logis Shot Past RM6.00 (Now split with bonus issue) Up an astounding 300% in less than one year.
So Insiders share buy back do indicate so future event only they are aware.
As For Company Share Buy Back It is a little murky.
When PNB Bought & Bought HT Padu shares when was a talk of privatisation. HT Padu Share Price Shot Up From 90 Cents to RM1.40 by PNB Share Buying. After that nothing happened for a long time.
There is a suspicion that PNB was pushing up HT Padu price for Insiders to sell out at a higher price.
So Insiders Buying Is Clearly Superior Than Company Share Buy Back
But If Both Company & Insider Operate Share Buying At The Same Time It Will Definitely Be Very Positive!
2014-10-25 12:42