Buy High, Sell Low
Corporate America loves buying its own stock — but apparently. only at the worst times, like when they are expensive or at the top of a bull market. When shares are cheap, or during a bear market, companies stop their usual buying.
Via Floyd Norris, we get the specifics:
“Standard & Poor’s reported this week that stock buybacks by companies in the S.& P. 500 fell to $24.2 billion in the second quarter of 2009. That was down 28 percent from the first quarter and was 72 percent below the figure for the same quarter of 2008. The amount was also the lowest for any quarter since S.& P. began tallying the figures in 1998. . .
At the peak of the buyback boom, in the third quarter of 2007, companies in the S.& P. 500 spent $171.9 billion repurchasing shares. The stock market peaked on Oct. 9 of that year, a few days after the quarter ended.
This year, the stock market hit bottom on March 9, and is up more than 50 percent since then. But buybacks continued to decline in the second quarter.”
Great timing . . .
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Source:
Loving Your Stock Only When It’s High
FLOYD NORRIS
NYT, September 18, 200
http://www.nytimes.com/2009/09/19/business/19charts.html
September 21st, 2009 at 11:37 am
It *was* great timing — for insider-selling.
September 21st, 2009 at 11:46 am
Nice data point, I would rely on it if it had predicted the 2000 crash .
September 21st, 2009 at 11:51 am
These are the same guys who are doing all that insider selling now…
http://online.barrons.com/article/SB124061355986854673.html
…Corporate clones who got to the top via political maneuvering and luck. No statistical ability to use their behavior in this regard to mimic them (but to do the opposite, perhaps?) The reverse indicator noted here at the bottom…
http://www.ritholtz.com/blog/2009/04/beware-insider-selling/
…even though now, the Wall Street marketing machine is they’re trying to say that those insiders were actually buying then…
http://money.cnn.com/2009/09/10/news/economy/insider.sales/index.htm?postversion=2009091107
…to keep you paying attention to the indicators which have no r-squared to speak of.
September 21st, 2009 at 11:59 am
The average CEO is probably a better manager than trader. I will always think about poor old’ Aubrey McClendon of Chesapeake…talk about buying high, higher, highest and the selling at the freaking low.
September 21st, 2009 at 12:21 pm
I dont get it… if everything is going so smoothly why arent these companies buying back shares on the cheap???
Oh, wait a minute, nevermind.
September 21st, 2009 at 12:34 pm
The price doesn’t necessarily matter. However they do get to play with EPS, triggering stock option bonuses based on that performance. Which means dilution so they then have to retire more stock to hit EPS targets to trigger more stock option bonuses ad greedium.
September 21st, 2009 at 12:34 pm
“talk about buying high, higher, highest and the selling at the freaking low.”
MR MCCLENDON, THERE’S A MR. MARGIN CLERK ON THE PHONE…
September 21st, 2009 at 12:34 pm
And these are supposed to be the smartest guys in the room, the captains of industry, the ones in whom the fate of the whole world rests……we’re doomed!
September 21st, 2009 at 12:39 pm
from bloomberg-
“After expanding at a 3.5 percent annual rate this quarter, the economy will grow at a 4 percent pace in the fourth quarter and at a 5 percent rate at the start of 2010, Maki wrote in a research report issued Sept. 17 . . . The rebound in the economy is being driven by housing and consumer spending, Maki said today . . . In housing, “affordability has improved so dramatically” and “housing prices have fallen faster than incomes.”
wow- 5% growth and cheap housing-
what more could you ask for
http://www.bloomberg.com/apps/news?pid=20601087&sid=a.QuF16Ik944
September 21st, 2009 at 12:45 pm
Don’t forget that the purpose of these buybacks are not to make a good investment for the owners, it is to make a big bonus at years end. By the time the concequences of the lousy “investment” hits the company, the people who made the descision are already on to a new company they can plunder and rape. Never forgo your short term gains for other peoples long term pains.
September 21st, 2009 at 12:49 pm
call me ahab Says:
“housing prices have fallen faster than incomes.”
what more could you ask for
____________________
. . . for those of us who still have incomes. The others are looking for work (and probably housing).
September 21st, 2009 at 12:50 pm
I wouldn’t be wasting too much time worrying about yon’ Aubrey..
“A growing number of companies have also dropped hints during quarterly conference calls that they think natural gas markets will improve in 2010. If so, the natural gas equities in our opinion will run further and faster than the commodity. …
An interview on Bloomberg radio mentioned that the “Mother of all contangos” was in place in the natural gas futures market. This means the price for natural gas to be sold next year is much higher than the current spot price. Over the last two decades the gap between the12 month forward contango price (the price you can get for natural gas futures sold a year from now) and the spot price has never been higher. The incentive is to store the natural gas according to the commentary, and sell it later when prices are higher – which explains the full storage facilities.
Bloomberg noted that when the contango was anywhere this steep in the past twenty years the natural gas spot price increased in value on average by 74%. The best play will be natural gas stocks according to the commentary, not the natural gas ETF investment vehicle.
Supporting this viewpoint is the fact that the current contango in natural gas is reminiscent of the “super contango” in crude-oil futures that occurred about half a year ago. At that time, crude contango helped push inventories at Cushing, Oklahoma to a record high. The price of crude oil since rallied by more than 50% while inventories are down 15% from their peak.”
http://www.financialsense.com/fsu/editorials/dancy/2009/0918.html
leaving aside, of course, his story being, just, a ‘limited hang-out’/ ProleFeed
http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=limited+hang+out
When peep, finally, snap out of it, it’ll be widely realized that NattyGas should be the Foundational Energy Source in North, & South, America, at the minimum..
should be noted: “SABIC Buys GE Plastics for $11.6bn
NEW YORK, 22 May 2007 — US conglomerate General Electric said yesterday it had agreed to sell its global plastics division, GE Plastics, to state-controlled Saudi Basic Industries Corporation (SABIC) for $11.6 billion.
GE Plastics is a global supplier of plastic resins used in numerous industries, including the automotive, health care, building and construction, and telecommunications sectors.
The deal was announced jointly by GE Chairman and Chief Executive Jeff Immelt and SABIC CEO and Vice Chairman Mohamed Al-Mady and follows intense press speculation that such a deal was in the works.
“This acquisition represents another important step in SABIC’s growth and diversification to become one of the world’s leading manufacturing companies,” Al-Mady said…”
http://www.arabnews.com/?page=6§ion=0&article=96503&d=22&m=5&y=2007&pix=business.jpg&category=Business
being a ‘Raw Material Supplier’, with No value-add, leaves one looking like Belgian Congo/Zaire/The DR of Congo… http://www.africa.upenn.edu/Country_Specific/Zaire.html
September 21st, 2009 at 1:43 pm
MEH: One word: Plastics. Wonder why GE needs to raise cash? GE managers have been told to be “happier” BTW.
OK, Mark, I will hold my COP. Actually, there is a case to be made that natty gas is going a lot lower in the short run, supply is robust at the moment and preparations for the “recovery” may increase the supply of oil and gas still further in 1st half of 2010. So any renewed demand destruction may take the price down this winter. Longer-term your point is a good one. I like CNG as a clean fuel for autos and I hope that this idea will catch on.
September 21st, 2009 at 2:03 pm
wow- 5% growth and cheap housing-
what more could you ask for
how about the truth?
September 21st, 2009 at 2:22 pm
lb,
I hear ya, though why COP, and their exposure to the Tar Sands folly, asopposed to CVX?
http://finance.yahoo.com/q?s=CVX
http://finance.yahoo.com/q?s=COP
also, re: COP, how’d they pull this off: Net Income From Continuing Ops (16,998,000) 11,891,000 15,550,000 (‘08/’07/’06)
?
past that, re: CNG, see: http://finance.yahoo.com/q?s=CPST
We should begin to understand that Centralized Electricity Production– like Centralized Governments, and, their fellow travelers, Central Banks, suck..merely, Command and Control with a different Currency.
September 21st, 2009 at 2:48 pm
@MEH: Like all else in my life, COP is on a 10% trailing stop. All is illusion and impermanence.
September 21st, 2009 at 3:12 pm
lb,
interesting, I was going to make mention of “Currency Event”-Risk, vis-a-vis Equity Holdings, leading to DTC lockdowns/SIPC “Insurance” reimbursement freezes.
but, you, already, figured out on those..sometimes those ‘Black Swans’ can look like Quetzalcoatlus-
http://www.ucmp.berkeley.edu/diapsids/pterosauria.html
September 21st, 2009 at 3:16 pm
They’re broke and the easy money is not so easy to be found now. And they’ve gotta preserve some of that cash for upper exec compensation, don’t you know.
September 21st, 2009 at 4:32 pm
onlooker; good point; they can no longer borrow money to purchase their own stocks to pump their “performance” bonuses. That gig is down for now.
September 21st, 2009 at 5:46 pm
Much easier to stop buybacks during a credit crunch than to cut a dividend…you can do the former without a bunch of headlines hitting…
But there is a better explanation than “corporations are dumb.” Share buybacks were occurring as new corporate debt was being issued. There was a fat discrepancy between corporate bond yields and earnings yields that began in 2004 which served as a huge incentive for corporations to begin to re-lever healthy balance sheets. It went away as capital markets froze during the crisis…
If the public has sworn off stocks…you will probably see buybacks begin to shoot up again. At the end of the day, corporate balance sheets have to look similar to the asset allocation that the public demands, or else corporations will be paying a cost of capital that is too high for one form of capital (stock) and too little for another (bonds)…
September 21st, 2009 at 6:35 pm
[...] Barry Ritholtz, The Big Picture [...]
September 21st, 2009 at 9:51 pm
In the case of the Banks, they should use the bought back stocks for stock options at the price acquired instead of bonuses. Then, there should be a requirement to exercise the option even if below water.
September 25th, 2009 at 9:15 am
[...] (way to lock in those losses!) and missed the subsequent rally. In other words, FINRA employed the buy high, sell low strategy. This amateurish mistake on both the upside and downside not only cost money, but it has [...]