| I don't know about you, but stock market investing is | | | | prophecy because when a company buys back its |
| incredibly difficult for me! There's just so much to | | | | stock, it by definition increases demand and decreases |
| know, and it can all be so confusing at times, that the | | | | supply whenever you increase demand and decrease |
| slightest little error on my part can wipe out everything | | | | supply, the price always goes up. |
| I've worked so hard to build over the last ten to fifteen | | | | Another reason why a company may offer to buy |
| years! But I keep plugging away, learning more and | | | | back some of its stock is a little more cynical. Many |
| more as I go, and slowly but surely I make progress. | | | | times company insiders own a lot of stock themselves |
| Over the years I've learned several valuable things | | | | and having the company buy back that stock is a way |
| about the stock market. Today I want to write a short | | | | for them to, in effect, pay themselves a bonus. No |
| little article about one of those things that you may not | | | | company will ever say that this is the reason why they |
| ever have put a lot of thought into, but is vitally | | | | are buying back stock, but you can always find out by |
| important to your stock market strategy. | | | | watching the levels of corporate insider stock holdings |
| The thing I'm talking about is Stock Buy Backs. | | | | which are publicly available. |
| First of all, what exactly is a stock buyback? Often | | | | So should you accept a stock buyback? The answer |
| times a company will offer to buy back shares at a | | | | is almost always yes! Many times a company will |
| premium price. That means they're willing to give you | | | | offer a premium over the current stock price, |
| more money than the stock is currently worth. Many | | | | sometimes as much as 10% or more above market |
| times investors aren't sure whether or not to accept | | | | levels. Studies have shown that if you hold onto your |
| such a deal and that's one of the reasons why I | | | | shares, the chances that they go up more than 2% or |
| wanted to write this article today. | | | | 3% in the months that follow are slim. Meaning you |
| Why do companies offer to buy back their stock? | | | | would have been much better off accepting the |
| Well, there are many different reasons. Sometimes a | | | | buyback offer. |
| company is sitting on a large pile of cash after having | | | | There is a bad side as well because when a company |
| a particularly good quarter or a particularly good year | | | | buys back stock it means that they're using their own |
| and they need to do something with that cash besides | | | | cash, which means they won't have that cash |
| let it sit there. Buying back some of their stock is a | | | | anymore to invest in the company by way of hiring |
| good way to return that money to their investors at a | | | | more employees, building more factories, increasing |
| lower tax rate. | | | | marketing, etc. which may impact the profits of the |
| Otherwise they may have to pay taxes on it and then | | | | company in the future which may cause the stock to |
| pay it out in the form of a dividend, at which point the | | | | go down in the future. Which means you should have |
| investors themselves will have to pay taxes on the | | | | sold your stock when you had the chance! |
| dividend. Stock buybacks can get around some of the. | | | | So there you have it, everything you ever wanted to |
| Another reason why a company may offer to buy | | | | know about stock buybacks. Now you can make a |
| back some of its stock is because that it feels that the | | | | much more informed decision the next time a |
| stock is under priced at the moment and therefore is a | | | | company offers to buy back its stock from you. |
| good investment in itself. This is a bit of a self fulfilling | | | | |