Buybacks and Tradebots

Is anyone trading? Not really. Except HFT players and corporate CFOs executing the buybacks that generate their compensation packages.

You got a 7%+ gain in the S&P this year on basically nothing and for no reason other than float-shrink initiatives that have zero to do with fundamentals. For every Disney, a company that is truly killing it right now, there are a dozen stagnant names masking slowing growth with a smaller overall pie to spread profits across.

If IBM and McDonalds were trading on the actual condition of their respective businesses, the Dow would be 500 to 1000 points lower.

But they’re not, and this is why short-term price predictions based on fundamental research are moronic, generally speaking. Because this is not at all unusual. Distortions based on non-fundamental factors are a permanent feature of both bull and bear markets. 1 +1 doesn’t equal 2 in the short run.

Back to Buybackpalooza…

Wall Street Journal (emphasis mine):

Corporations bought back $338.3 billion of stock in the first half of the year, the most for any six-month period since 2007, according to research firm Birinyi Associates. Through August, 740 firms have authorized repurchase programs, the most since 2008.

The growth in buybacks comes as overall stock-market volume has slumped, helping magnify the impact of repurchases. In mid-August, about 25% of nonelectronic trades executed at Goldman Sachs Group Inc., excluding the small, automated, rapid-fire trades that have come to dominate the market, involved companies buying back shares.

According to Barclays, companies in the second quarter spent 31% of their cash flow on buybacks, the most since 2008 and up from 14% at the end of 2009. At the end of the second quarter, nonfinancial companies in the S&P 500 index held $1.35 trillion of cash, down from a record of $1.41 trillion at the end of last year, according to FactSet.

LOL.

If no one’s involved with the market directly – apart from buybacks and tradebots – then theoretically whatever sell-off may come should do very little damage to the real economy.

Comforting, a little.

Source:

Companies’ Stock Buybacks Help Buoy the Market (WSJ)

 

 

 

 

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.

What's been said:

Discussions found on the web
  1. tangerine banque log in commented on Nov 29

    … [Trackback]

    […] Information on that Topic: thereformedbroker.com/2014/09/15/buybacks-and-tradebots/ […]

  2. Regression testing commented on Dec 18

    … [Trackback]

    […] Read More Information here on that Topic: thereformedbroker.com/2014/09/15/buybacks-and-tradebots/ […]

  3. qiuqiu99 commented on Dec 22

    … [Trackback]

    […] Read More on that Topic: thereformedbroker.com/2014/09/15/buybacks-and-tradebots/ […]