The other side of stock buybacks

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jalbert
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The other side of stock buybacks

Post by jalbert » Wed Jul 18, 2018 1:40 am

CEOs are shoveling cash at stock buybacks while simultaneously selling their own shares.

https://money.cnn.com/2018/07/17/invest ... index.html
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jharkin
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Re: The other side of stock buybacks

Post by jharkin » Wed Jul 18, 2018 7:11 am

Not the first time Ive seen this called out. What I would also like to see in these analyses - if its even possible - is a breakdown of how much of those insider sales are option exercises vs. sale of shares they already held.


I'd bet money its mostly the former. Which makes the motive for doing buybacks rather than issuing dividends pretty clear.

Ping Pong
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Re: The other side of stock buybacks

Post by Ping Pong » Wed Jul 18, 2018 7:39 am

jharkin wrote:
Wed Jul 18, 2018 7:11 am
Not the first time Ive seen this called out. What I would also like to see in these analyses - if its even possible - is a breakdown of how much of those insider sales are option exercises vs. sale of shares they already held.


I'd bet money its mostly the former. Which makes the motive for doing buybacks rather than issuing dividends pretty clear.
It would be easy enough to put a dividend adjustment clause in the options contract so that the outcome would be the same whether cash was returned via buyback or dividend. I.e. they could make it based on total return rather than price return.

nordsteve
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Re: The other side of stock buybacks

Post by nordsteve » Wed Jul 18, 2018 8:20 am

"God forbid you give it back in the form of a dividend," he said. "While it may not be the most tax efficient, at least with dividends you let the shareholder decide what to do with the money."
This made me laugh-like the shareholder is somehow prevented from selling shares to achieve the same goal.

About 1/3 of my annual pay at MegaCorp comes in the form of shares. In my IPS, I’ve set a maximum percentage of my holdings in $MEGA, and as a result routinely am a seller. It is painful sometimes, because I’m bullish on the future of the company. But the alternative is to put myself in an Enron situation. Saw that movie, didn’t like it. Smart CEOs are making the same decision.

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Re: The other side of stock buybacks

Post by Jack FFR1846 » Wed Jul 18, 2018 8:54 am

nordsteve wrote:
Wed Jul 18, 2018 8:20 am
"God forbid you give it back in the form of a dividend," he said. "While it may not be the most tax efficient, at least with dividends you let the shareholder decide what to do with the money."
This made me laugh-like the shareholder is somehow prevented from selling shares to achieve the same goal.

About 1/3 of my annual pay at MegaCorp comes in the form of shares. In my IPS, I’ve set a maximum percentage of my holdings in $MEGA, and as a result routinely am a seller. It is painful sometimes, because I’m bullish on the future of the company. But the alternative is to put myself in an Enron situation. Saw that movie, didn’t like it. Smart CEOs are making the same decision.
This is a smart move and I do the same. My maximum % is zero, so it's sold on vest. I'm quite happy that our company uses etrade as I can set that desire up front and it happens without my input.
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jalbert
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Re: The other side of stock buybacks

Post by jalbert » Wed Jul 18, 2018 11:51 pm

But the alternative is to put myself in an Enron situation. Saw that movie, didn’t like it. Smart CEOs are making the same decision.
Possibly. The article suggested that CEO selling had increased. And if companies are doing buybacks to enable CEOs to exercise stock options favorably, or to increase earnings/share if their bonuses are tied to that, I'll just say that these are interesting practices.
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Afty
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Re: The other side of stock buybacks

Post by Afty » Thu Jul 19, 2018 12:43 am

Don’t we Bogleheads always tell people to sell their shares as soon as they vest? Then why should it be any different for CEOs?

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bottlecap
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Re: The other side of stock buybacks

Post by bottlecap » Thu Jul 19, 2018 1:06 am

nordsteve wrote:
Wed Jul 18, 2018 8:20 am
"God forbid you give it back in the form of a dividend," he said. "While it may not be the most tax efficient, at least with dividends you let the shareholder decide what to do with the money."
This made me laugh-like the shareholder is somehow prevented from selling shares to achieve the same goal.
I didn’t laugh, but that statement got a big eye roll from me for the same reason.

JT

JoeRetire
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Re: The other side of stock buybacks

Post by JoeRetire » Thu Jul 19, 2018 9:43 am

"They're buying back from the front door, and shoveling shares out the back door," said John Mousseau, president of CEO of Cumberland Advisors, an investment firm that manages more than $3 billion.

"It would be like going on TV to tell everyone what stocks we like, and then selling them," he said.
Use company money to buy back shares while cashing in your own shares. Who could have predicted that? :shock:

A pretty sweet deal. Hard to blame the insiders for taking advantage of the huge gift they were given by the government.

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Re: The other side of stock buybacks

Post by Glockenspiel » Thu Jul 19, 2018 10:14 am

CEOs are fleecing the U.S. Treasury. Unemployment is at levels basically not seen since right after WWII. OMB just released 2019 budget deficit projection of $1,085 billion ($1.085 trillion). 2015 budget deficit was $438 billion. Any economist would tell you that during periods of great economic expansion, countries should be decreasing their annual deficit and the deficit could even become a surplus (due to economic investment, additional tax receipts from lower unemployment, higher wages, etc.) I can only imagine what the annual deficit will balloon to once the next recession begins.

PVW
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Re: The other side of stock buybacks

Post by PVW » Thu Jul 19, 2018 12:47 pm

Glockenspiel wrote:
Thu Jul 19, 2018 10:14 am
CEOs are fleecing the U.S. Treasury.
How are CEOs fleecing the US Treasury?

If you're saying they're making money off stock repurchases prompted by the recent tax cuts, then the same is true of any investor that owns stock in these companies. Are you also fleecing the US Treasury?

MindBogler
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Re: The other side of stock buybacks

Post by MindBogler » Thu Jul 19, 2018 1:37 pm

Glockenspiel wrote:
Thu Jul 19, 2018 10:14 am
CEOs are fleecing the U.S. Treasury. Unemployment is at levels basically not seen since right after WWII. OMB just released 2019 budget deficit projection of $1,085 billion ($1.085 trillion). 2015 budget deficit was $438 billion. Any economist would tell you that during periods of great economic expansion, countries should be decreasing their annual deficit and the deficit could even become a surplus (due to economic investment, additional tax receipts from lower unemployment, higher wages, etc.) I can only imagine what the annual deficit will balloon to once the next recession begins.
This is not the forum for political discussion. Go beat stupid political drums somewhere else where they care.

/end

GAAP
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Insiders dumping stocks

Post by GAAP » Fri Jul 20, 2018 11:09 am

CNN Money: https://money.cnn.com/2018/07/17/invest ... index.html
The captains of Corporate America are steering a record amount of cash into stock buybacks.

Companies have announced them this year at a rate of more than $5 billion a day. The buyback boom has been viewed by investors as a sign of confidence among CEOs.

Yet with their own money, executives are quietly taking a much different approach: They're cashing out.

Insiders dumped $8.4 billion of their shares in May and $9.2 billion in June, according to an analysis of regulatory filings by TrimTabs Investment Research. That's the biggest two-month period of insider selling in a year.

"They're buying back from the front door, and shoveling shares out the back door," said John Mousseau, president of CEO of Cumberland Advisors, an investment firm that manages more than $3 billion.

"It would be like going on TV to tell everyone what stocks we like, and then selling them," he said.
Funny thing: I got this link from an internal "must-read" email from my MegaCorp employer -- who announced stock buybacks last year. MegaCorp had one insider sale in the last 3 months, 22 in the last year -- with no buys...

Thoughts?

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Re: The other side of stock buybacks

Post by LadyGeek » Fri Jul 20, 2018 11:16 am

^^^ I merged GAAP's post into here.
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TomatoTomahto
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Re: The other side of stock buybacks

Post by TomatoTomahto » Fri Jul 20, 2018 11:25 am

Afty wrote:
Thu Jul 19, 2018 12:43 am
Don’t we Bogleheads always tell people to sell their shares as soon as they vest? Then why should it be any different for CEOs?
Bingo.

I guess CEOs aren’t allowed to be Bogleheads. My wife is down a level or two from CEO; is she allowed to sell on vesting?

Sheesh!

barnaclebob
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Re: The other side of stock buybacks

Post by barnaclebob » Fri Jul 20, 2018 11:43 am

TomatoTomahto wrote:
Fri Jul 20, 2018 11:25 am
Afty wrote:
Thu Jul 19, 2018 12:43 am
Don’t we Bogleheads always tell people to sell their shares as soon as they vest? Then why should it be any different for CEOs?
Bingo.

I guess CEOs aren’t allowed to be Bogleheads. My wife is down a level or two from CEO; is she allowed to sell on vesting?

Sheesh!
Seems like it could be a good argument that CEO's and other high level employees should have more personal investment in their company. Of course then you open up the debate on whether this is actually better for the company in the long term vs just focusing on the share price for the next few years at best.

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TomatoTomahto
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Re: The other side of stock buybacks

Post by TomatoTomahto » Fri Jul 20, 2018 12:55 pm

barnaclebob wrote:
Fri Jul 20, 2018 11:43 am
TomatoTomahto wrote:
Fri Jul 20, 2018 11:25 am
Afty wrote:
Thu Jul 19, 2018 12:43 am
Don’t we Bogleheads always tell people to sell their shares as soon as they vest? Then why should it be any different for CEOs?
Bingo.

I guess CEOs aren’t allowed to be Bogleheads. My wife is down a level or two from CEO; is she allowed to sell on vesting?

Sheesh!
Seems like it could be a good argument that CEO's and other high level employees should have more personal investment in their company. Of course then you open up the debate on whether this is actually better for the company in the long term vs just focusing on the share price for the next few years at best.
Really? Then why not ALL employees. ETA: sauce for the goose, etc.

I don’t have a referance, but I would not be surprised that the “don’t sell company stock or it will affect your career” culture and subsequently discovered corporate malfeasance correlate.

alex_686
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Re: The other side of stock buybacks

Post by alex_686 » Fri Jul 20, 2018 1:15 pm

TomatoTomahto wrote:
Fri Jul 20, 2018 12:55 pm
barnaclebob wrote:
Fri Jul 20, 2018 11:43 am
TomatoTomahto wrote:
Fri Jul 20, 2018 11:25 am
Afty wrote:
Thu Jul 19, 2018 12:43 am
Don’t we Bogleheads always tell people to sell their shares as soon as they vest? Then why should it be any different for CEOs?
Bingo.

I guess CEOs aren’t allowed to be Bogleheads. My wife is down a level or two from CEO; is she allowed to sell on vesting?

Sheesh!
Seems like it could be a good argument that CEO's and other high level employees should have more personal investment in their company. Of course then you open up the debate on whether this is actually better for the company in the long term vs just focusing on the share price for the next few years at best.
Really? Then why not ALL employees. ETA: sauce for the goose, etc.

I don’t have a referance, but I would not be surprised that the “don’t sell company stock or it will affect your career” culture and subsequently discovered corporate malfeasance correlate.
2 thoughts on this.

Warren Buffet looks at CEOs buying their own stock as a positive sign, them selling as a neutral sign. As others have stated, it is in one's interest to hold a diversified portfolio.

Also, there have been many way to reward CEOs. Some target revenue or sales, but these can either be manipulated via accounting or distorted to hurt the stockholders. There are options, but that rewards volatility as well as return. Restricted units. Zero percent loans to buy company stock. etc. All have their good points as well as bad. A good board will come up with the right mix, a poor board will allow themselves to be robbed blindly.

JoeRetire
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Re: The other side of stock buybacks

Post by JoeRetire » Fri Jul 20, 2018 1:45 pm

Glockenspiel wrote:
Thu Jul 19, 2018 10:14 am
CEOs are fleecing the U.S. Treasury.
How are they doing that? By clearly acting in their own self interest?
Unemployment is at levels basically not seen since right after WWII. OMB just released 2019 budget deficit projection of $1,085 billion ($1.085 trillion). 2015 budget deficit was $438 billion. Any economist would tell you that during periods of great economic expansion, countries should be decreasing their annual deficit and the deficit could even become a surplus.
And yet somehow this government chose not to decrease the deficit. How can that be the fault of CEOs?

JoeRetire
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Re: The other side of stock buybacks

Post by JoeRetire » Fri Jul 20, 2018 1:48 pm

TomatoTomahto wrote:
Fri Jul 20, 2018 12:55 pm
Then why not ALL employees. ETA: sauce for the goose, etc.
Well, some geese are swimming in sauce, while most ganders get just a few drops.

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TomatoTomahto
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Re: The other side of stock buybacks

Post by TomatoTomahto » Fri Jul 20, 2018 1:59 pm

JoeRetire wrote:
Fri Jul 20, 2018 1:48 pm
TomatoTomahto wrote:
Fri Jul 20, 2018 12:55 pm
Then why not ALL employees. ETA: sauce for the goose, etc.
Well, some geese are swimming in sauce, while most ganders get just a few drops.
My wife’s RSUs are more than double her “salary.” Is it okay to sell just enough to cover the tax liability (based on value at vesting)?

Geez. I thought BH bought into the capitalist system.

JoeRetire
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Re: The other side of stock buybacks

Post by JoeRetire » Fri Jul 20, 2018 2:03 pm

TomatoTomahto wrote:
Fri Jul 20, 2018 1:59 pm
My wife’s RSUs are more than double her “salary.” Is it okay to sell just enough to cover the tax liability (based on value at vesting)?
She should sell whatever makes the most sense for her situation.
Geez. I thought BH bought into the capitalist system.
Can we agree that there are some terrific aspects of the current incarnation of "the capitalist system" as well as some that suck? IMHO income inequality growing at the current rate isn't good and isn't sustainable.

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Re: The other side of stock buybacks

Post by triceratop » Fri Jul 20, 2018 2:07 pm

Please keep discussion on-topic and away from economic policy and political discussion. Bogleheads is a personal finance forum which is unrelated to "buying into" any given economic system.
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mak1277
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Re: The other side of stock buybacks

Post by mak1277 » Fri Jul 20, 2018 2:14 pm

barnaclebob wrote:
Fri Jul 20, 2018 11:43 am
TomatoTomahto wrote:
Fri Jul 20, 2018 11:25 am
Afty wrote:
Thu Jul 19, 2018 12:43 am
Don’t we Bogleheads always tell people to sell their shares as soon as they vest? Then why should it be any different for CEOs?
Bingo.

I guess CEOs aren’t allowed to be Bogleheads. My wife is down a level or two from CEO; is she allowed to sell on vesting?

Sheesh!
Seems like it could be a good argument that CEO's and other high level employees should have more personal investment in their company. Of course then you open up the debate on whether this is actually better for the company in the long term vs just focusing on the share price for the next few years at best.
Most public companies have minimum stock holding requirements for senior executives.

MIretired
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Re: The other side of stock buybacks

Post by MIretired » Sat Jul 21, 2018 5:06 pm

Don't stock buy backs AND exec. share options have to be set or approved by the boards?

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