by Nick D.
What are stock buybacks and how should shareholders respond when companies are buying back shares of stocks?
Explaining buybacks is easy, it’s the reason why companies buy back shares of their own stock. The name is self explanatory.
Public companies buyback stock frequently. In fact, “U.S companies purchased $710 billion of their own shares of stock, which is actually a decline of 15% compared to 2018. In 2020, share buybacks are expected to decline by another 5%, Goldman Sachs reports.”(Janssen)
Why do Companies Buy Back Stocks?
-Saves Money
Lots of companies increase the amount of stock buyback to save on payments and as result, keep stock dividend payments at their current levels. Due to the stock dividend payments staying at their current level, there are fewer to be paid because they are already buying it. This allows the company to save money as it goes into the stock buyback programs.
-To invest
Most companies invest in their own stock for the same reason that you would invest in a company's stock. If the company is doing good they will make that profit themselves instead of the people who had it before.
-To Boost Confidence in the Company and its Stock
If a company has stock that is declining, buying back the stock can restore its value. Also, when investors see a company buying stock back, they will themselves think the stock has value and make an investment.
-To Maintain a Companies Producers
By buying stock and giving it to their producers, a company is sure to keep their best employees. If you receive free stock you will most likely continue to do business with the people handing out the stock.
Notice the increase in cash flow after stock is bought back. This isn’t always the case but when smart investments are made this is a sure way to make money when running your future business.
Works Cited
“Fidelity Capital Markets.” Capitalmarkets.fidelity.com, capitalmarkets.fidelity.com/?sapl=pdsearch&gclid=58b322d4a2cb1877e4b54253c295dd5e&gclsrc=3p.ds&msclkid=58b322d4a2cb1877e4b54253c295dd5e.
Janssen, Cory. “Breaking Down Stock Buybacks.” Investopedia, Investopedia, 8 Feb. 2021, www.investopedia.com/articles/02/041702.asp.
Merritt, Cam. “Advantages & Disadvantages of Buying Back Your Own Stock.” Pocketsense, 10 Jan. 2019, pocketsense.com/advantages-buying-back-own-stock-8031647.html#:~:text=1%20Boosting%20Share%20Value.%20It%27s%20simple%20supply%20and,Opportunity.%20...%204%20Buying%20High%2C%20Selling%20Low.%20.
This was really interesting, I guess I never realized or connected that a company could buy back their own stock, and the reasoning makes a ton of sense. I think the most interesting reason was to build confidence in the company and its stock. It brings things back to the herd mentality; if one person does it, the rest are more likely to follow.
ReplyDeleteThis is very interesting because this is something that I never knew about. I kind of seems risky, but I guess that it shows more confidence to investors and that is always a very good thing when looking into investing into something.
ReplyDeleteI never knew that companies buy back their own stock, and now that you have explained it, it makes sense! It doesn't seem like there are any downsides of a company buying their own stock because they're just investing in themselves and when their stock eventually goes up, they just sell. So in that case it's a win win type of situation. And when they gave their employees stock I didn't know that this was a common thing. A couple of weeks ago my mom was telling me that she received some shares from her own work a few years ago. And I just thought it was a nice thing, but it's to keep their employees at the complanty longer. And she is still there today.
ReplyDeleteThis is a very interesting topic to write about and I appreciate the fact that you took a different approach to your blog than others. One question I do have is do all small and big companies do this? or are there some other ways they invest and save money? Its sad to see a decline with the purchase of the U.S buying back their stocks. Hopefully with Covid getting better that number will increase. Overall this was a good blog post, very informative!
ReplyDeleteThis was a very interesting topic to read! I really enjoy stocks and this made me really interested even more. I had no idea that companies buy their own stocks just to raise the price or to make money off of it. Corona also destroyed the stock market last march, so maybe it will be more stable in the nest few years.
ReplyDeleteI never even thought that buying something that you sold yourself would help in such a big way for a company. You would think that it would only serve to lose more money in the process however it seems that that is incorrect. However, as with most things in business, this is pretty risky so you would think that it is only what businesses who are confident in their stocks would do.
ReplyDeleteThis was super interesting to read about. I guess I never really realized that companies could buy back their own stocks, but it makes total sense on why they would/ the benefit of it. You'd feel more comfortable buying a stock from a company that is buying their own stocks because if they are doing it they must have some sort of confidence.
ReplyDeleteI never really thought that companies could buy back their own stocks, very interesting! Stocks are super interesting, and I like that you listed the benefits of it. One question I have is do all companies do this? Or is it only big or small companies? Otherwise great piece, good job!
ReplyDeleteThis was a very interesting topic and is something I haven't thought much about. I never knew that companies could buy back their own stocks even when they are a publicly traded company. You had very interesting topics that you mentioned and like I said, the fact that you chose a unique topic about something that I had no idea about, made for a very good read.
ReplyDeleteStock buyback is something I've never heard about in my life so this was a really interesting read. Companies I'm sure gain tons from buying their own stock personally for members of the business and for the business in general. Something from this piece that really stuck out to me was the amount of companies that do it, it seems as if almost every company based in America owns some percentage of their own stock.
ReplyDeleteI didn’t know that companies could even buy back stocks. It is interesting how stock buy backs work. For example, what happens if someone owns the stock of a company, but the company wants to buy it back. Can they force the person to sell them back their stock? Or can the company only buy back the stock if the person is willing to sell it?
ReplyDeleteVery cool to hear about something new when it comes to stocks. I thought I was pretty well informed on the stock market, but I guess there is always new information to learn. I wonder what other way or tools are used in the stock market that most of us have never heard about?
ReplyDeleteI've never really heard of this before but it was really cool to get some new information on it. I can understand why a company would want to buy back stocks of their own company, my one question however is that a large part of stocks is that people are investing their money into a piece of your company and when the company owns there own stock people likely aren't necessarily able to invest as easily, could this negatively impact a company as well?
ReplyDeleteThis was very nice to hear about something related to stocks. It’s always interesting to hear more about a certain subject. This was very informative. I wonder if there are others ways to get involved with the stock market?
ReplyDeleteThis was very nice to hear about something related to stocks. It’s always interesting to hear more about a certain subject. This was very informative. I wonder if there are others ways to get involved with the stock market?
ReplyDeleteI never really though about how a company could buy back their own stocks, it makes sense but its not something someone would usually think about.
ReplyDeleteI didn’t know that companies could buy back their own stock or why they would want to. I liked how you broke down all the main reasons that a company would do this and the one that I found most surprising was the company doing it to boost confidence in the company and their stock. This makes a lot of sense. Do you think there's any downside to a company buying their own stock?
ReplyDeleteThis was something that I didn’t know happened!! It was very interesting to read about how companies can buy their own stocks back and the reasons as to why they would do that. Knowing this information, I think, can be very helpful for us new investors when tackling the scary world of stock investments, and would be wise to know this before investing in stocks.
ReplyDeleteI find it really interesting that businesses buy back their own stocks and I never realized why they would do it which was as you said to save on payments which is interesting, as I never knew some of the benefits for a company on doing that
ReplyDeleteAshley Anderson - I never knew what Stock BuyBacks were, so I'm glad you gave an overview of what they actually are! I never even realized companies could buy back their stocks, so that's super interesting you mentioned that. After further research, I also found from the Investopedia website that, "In the long term, buybacks can help produce higher capital gains, but investors won't need to pay taxes on them until they sell the shares." In other words, I think that it is ultimately up to the company's need/wants if they decide buying back shares of stocks is something that will benefit their company. Do you think that all companies should use this method? Or does it only pertain to certain companies?
ReplyDeleteThis was a very well written piece. The topic was something that grabbed my attention right away. I never knew that some companies actually buy back their own stocks. I never really knew how all of it worked and or even heard of it. This piece was very well written and the formatting made it super easy to read and understand. You always hear more about people buying stocks but never companies buying back their own so great topic and great piece!
ReplyDeleteI think that this post is incredibly interesting as this is something that involves the market many of us and our families have money in right now. You mention all of the beneficial aspects toward the corporate owners as they have pros to this, but I think a limitation in this is how these buybacks fall on a consumer scale and moral scale. These are essentially inflation of your own stock, which has ethical limitations, as well as can even be considered insider trading (not by the law, but my moral opinion). How do you think this corporate buyback impacts ethical and consumer interests?
ReplyDeleteI found your blog interesting as I have never heard of buy back stocks but the concept is quite simple as you clarified. I do think it is a good way to get people to want to buy stock in your company… you mentioned that it boosts confidence which I completely agree with as if there are lots of people investing in a company, more people will tend to do so as well. I think this is a great strategy to use which brings my question: why do you think there’s a 20% decline in buy back stocks?
ReplyDeleteBefore reading this I didn't really know that companies did this but now that I think of it certain people in companies own stocks of the company that they work at like Jeff Bezos because he owns over 10% of the stocks and that is a lot of company. I also like how you structured your piece because it was set up in a easy and fast way of reading it and you brought up a lot of good sources. Another thing that I like about this piece is how you started it off with a brief explanation but then went more in depth in the different benefits of buying your own companies stocks. Overall, I thought you did a great job and I am also wondering do employees of their own companies buy their own companies often?
ReplyDeleteThis piece was very interesting to me because I have a good understanding of the stock market and how it works in general, but I didn’t have a good understanding of what stock buy backs were. I think that it is a really good idea for companies to buy a lot of shares of their own stock so if they are doing good, they aren’t only profiting off of their business, but they are then going to make even more money off of the stock market. While this could be a good thing, this could also cause a company to suffer, because if business is slow, and the stock market crashes like it did in this past year due to COVID, then it could easily cause a company to go out of business. So, if you were to own your own company, would you buy a lot of shares in your own stock?
ReplyDeleteI think the stock market is a great, but risky place to invest in. You can get high returns and make a lot of profit. Investing in the stock market is something that I want to do in the future, so I think it is really important to have a vast understanding of it and all of its components. With that being said, I don't really know that much about the stock market and am looking to expand the little knowledge that I have; this piece was very informative to a procedure that happens in the stock market.
ReplyDeleteThis was really interesting to read about, because I thought that the only major buyers of company stock were individuals. It definitely makes sense that companies would buy their own stock, as the company's investment would be reliant on the overall health of the company. Also, this post made me question whether different companies buy different amounts of their own stock based off the type of company they are.
ReplyDeleteI didn’t know that companies could even buy back stocks. It is interesting how stock buy backs work. For example, what happens if someone owns the stock of a company, but the company wants to buy it back. Can they force the person to sell them back their stock? Or can the company only buy back the stock if the person is willing to sell it?
ReplyDeleteYeah I never thought the reason for instate tuition was because of taxes. i thought it was just and incentive to stay instate for collage. I wounder how much of the tuition cost could be reduced to try and reduce student debt. posture trainer
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