Monday, April 26, 2021
The Truth Behind Stock Buybacks Financial Engineering Game https://youtu.be/AUc-6LeAttA
The Truth Behind Stock Buybacks Financial Engineering Game https://youtu.be/AUc-6LeAttA
The Truth Behind Stock Buybacks Financial Engineering Game
In today's market far too much has become based on financial engineering rather than making money. Prior to the Great Depression share buybacks and margin lending was a huge factor in lifting stocks to an unsustainable level. We must remember this today because for years we have seen a slew of stories and articles about how companies buying back their own stock are driving the market higher. I would be amiss not to comment on this and point out the impact and importance of stock buybacks and how they add to both low volatility and at the same time support "crazy high" valuations.
For decades stock buybacks were illegal because they were considered to be a form of stock market manipulation. They were legalized in 1982 by the SEC and since then have become a tool for companies and management to boost share prices. Buybacks have been described as "smoke and mirrors," because when a company buys back shares of their own stock they reduce the "share float" and increase earning per share.
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