No, you can't buy a stock (causing it to go up) and then sell at the higher price; that would be creating profit out of nowhere. And aren't bought-back shares destroyed?
Buying back shares doesn't raise the stock price because it doesn't change the underlying fundamentals. If the stock goes up after a buyback, it only stays up if there was a reason other than a share buyback.
Actually, when buying back stock you're essentially reducing the number of shares outstanding, which, all else equal, would translate into a higher stock price.
But after they buy back their shares they can later sell them on the market, right?
Or do they instantly destroy them as they buy them back?
Either way the result is the same, they can buy them when they are cheap and resell/emit them when they are expensive. And they have internal knowledge of the company. And that's insider trading.
So all the people who make the buyback decisions are paid in stock. It is in their own self interest to buy back as much stock as possible, and inflate the per share price, right?
my point is if the stock price jumps then the buyback occurs at a greater price per share, making the effect of the buyback less effective (fewer shares are eliminated)
One can continuously grow a stock if they reduce the shares outstanding.
That being said iirc buy backs have notoriously all gone to executives. Essentially they buy back, and then award themselves options to re-dilute, but cannot readily find a source for that. So maybe incorrect.
Buybacks often don't creat value for shareholders though. When a stock is trading for more than its intrinsic value, buybacks destroy value.
Buffett/Berkshire is literally the only example I can think of where they only buyback shares when prices drop below a certain threshold. Most companies do it regardless of whether it is creating or destroying value, based only on whether they have cash authorized to spend.
But "buying back stock" only temporarily creates value for the shareholder. If they don't immediately sell the stock, the price will return to what it was before they buyback, because no underling value in the company has increased (especially when dividends are never payed out, like most high tech companies that are always in the "growing" phase : looking at you FB, Goog etc).
Don't stock buybacks basically transfer wealth from the company to the shareholders?
No. It drives up the share price. That's nice for people who want to sell, but does little for the long term. A company that has dividends might be able to increase them if the number of shares is reduced, but buybacks are often done by companies that dont have dividends. There are companies doing both and I'm not sure what to make of that.
It’s how it often works, but buybacks are an option to avoid diluting share price (issuing stock diluted share price, buying it back does the opposite, though should be neutral).
It doesn't matter that they are buying at a higher price, theoretically stock buybacks should have no affect on the market value of the company. All it does is increase shareholder equity and buy the same amount decrease the number of floating shares. The problem is that retail money only looks at the price of the stock without any context for the company as a whole.
How could the price not go up? I understand buybacks as reverse dilution. Each share represents a larger percentage of the company, therefore it is more valuable and it's price should be higher. Is that wrong?
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