Buybacks-Secondaries

A reader commented and asked: “I searched your site for ‘insider’ and found very little investigation of a relationship between insider buys and stock price movement. Is this an area you could look at, classify and present to readers?”

…evidence suggests that investors may be able to predict which SEOs will engender the most pronounced subsequent market underperformance by measuring the level of surprise in the SEO announcement.

“Results appear to indicate that firm executives are not especially good timers of the aggregate stock market.”

…evidence suggests that investors may be able to enhance stock buyback signaling by focusing on firms with relatively low insider ownership.

…the professional investors at ValueInvestorsClub.com on average successfully identify and exploit value opportunities by focusing mostly on mismatches between stock price and intrinsic value.

…evidence for the management compensation (rather than reward for shareholders) motivation for open market stock buybacks is mounting, causing investors to pay less attention to buybacks.

…some anomalies are stronger and more consistent than others. Momentum appears to be the strongest and most consistent.

…in international markets, secondary share offerings reliably predict poor future stock returns, but share buybacks predict good future returns only for small firms.

…share repurchase announcements are now more reliable indicators of actual buyback activity, and consequent beneficial impact on earnings per share, than they were before 2004.

…share repurchase announcements persist as good indicators of stock undervaluation, most significantly amplified by poor returns over the prior six months.

…there is a cycle of cash flow between companies and investors, as the former first sell shares, then buys the shares of other companies and finally buys back their own shares.

…investors should augment dividends with measures of stock repurchases and issuances when relating equity yields to expected returns.

…secondary stock offerings are bad news for companies in financial management mode and neutral news for companies in growth mode. Firm accounting data indicate a company’s mode.

…prior downward management of earnings (via accruals) is one reason that firms repurchasing shares generate subsequent abnormal stock returns.

…the stocks of companies issuing equity and convertible debt tend to underperform over several years as they invest “easy money” into projects of diminishing returns.