Some investors have blindly trusted Wall Street's "buy the dips" mantra ever since 2009. And companies have obliged by spending some $2.3 trillion on stock buybacks since then.
But there's a growing concern that as stocks start to head lower, the money companies spend on buybacks would be better spent on improving long-term return prospects.
Some investors have blindly trusted Wall Street's "buy the dips" mantra ever since 2009. And companies have obliged by spending some $2.3 trillion on stock buybacks since then.
But there's a growing concern that as stocks start to head lower, the money companies spend on buybacks would be better spent on improving long-term return prospects.
Now it looks like stock buybacks' days are numbered...
In just the first six months of 2015, U.S. firms spent more than a quarter of a trillion dollars on share buybacks.
And federal data shows that corporate buybacks, which have been rising for years now, are likely to grow even more between now and 2020.
The really good news for tech stocks is this: Technology companies make up the bulk of firms that are racing to repurchase their stock.
Retail investors can reap a number of stock buyback benefits.
But it's important to understand how buybacks work when determining if they're good for your portfolio.
Here's a breakdown of how a stock buyback benefits retail investors like you and me...
Stock buybacks have hit record levels - but what's driving the growth is dangerous for you and our economy.
Total stock buybacks for 2014 amounted to $696 billion, or 4% of U.S. gross domestic product (GDP), according to Research Affiliates. That's a lot spent on a practice that used to be tightly regulated by the U.S. Securities and Exchange Commission because it was considered manipulative.
You see, even though they're common now, buybacks are manipulative. They make sense for some companies, but now they're often used to inflate stock prices - and make executives rich.
In fact, most of today's stock buybacks are not only unproductive for the long-term health of corporations, but destructive in terms of economic growth.
Here's how bad the stock buyback "con game" has become - and how we can fix it...
Company stock buybacks sound innocent enough: a stock buyback occurs when a company repurchases its own shares.
But the effect is insidious. Buybacks inflate paper profits without producing anything of tangible value -- which means earnings will be inflated and misleading to investors.
That's why Money Morning Capital Wave Strategist Shah Gilani accuses buybacks of being a large part of the "financial engineering" going on in U.S. markets right now.
Stock buybacks are hitting pre-recessionary levels, leaving observers wondering: Are stock buybacks good for investors?
Some companies may use it as a way to artificially inflate a stock price, although others may only be trying to deliver to shareholders the actual value of the company.
Here’s what you need to know for the next time you hear a stock buyback announcement…
Corporate stock buybacks are usually touted as good for investors - it's typically one of the top demands that activist investors make when targeting a company.
But while stock buybacks can benefit current shareholders, they tend to distort a company's earnings picture - which can mislead potential investors.
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Companies flush with cash are increasingly engaging in stock buybacks - taking money and buying back some of their own shares.
During the 18-month period from April 2011-October 2012, companies in the S&P 500 bought back a net 8 billion shares. At the end of 2012's third quarter, there were about 300 billion shares outstanding for S&P 500 companies, the lowest quarter-end total since the middle of 2009.
Some investors see stock buybacks as a good thing: The company has extra money and thinks its stock is at a bargain price. Companies often describe stock buybacks as good investments in sound businesses.
But in reality, stock buybacks can actually hurt shareholders in the long run.
"Behind the wondrous façade, stock buybacks are just a means for management to enrich themselves," said Money Morning Global Investing Strategist Martin Hutchinson. "The truth is buybacks are positively damaging to the interests of ordinary shareholders."
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