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The Biggest Buyer of Stocks

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“Stockholders as a class are king. Acting as a majority they can hire and fire managements and bend them completely to their will.” – Benjamin Graham, The Intelligent Investor

Corporations have been buying back shares at a record pace, buying mores stock than any other group of investors today including: Hedge funds, foreigners, insiders, pension funds, insurance companies, and individual investors.

In the first quarter of this year corporations purchased $188 billion of stock—the highest quarterly amount since 2007, according to Birinyi Associates.

We all know how stocks did after 2007.

In buying back their stock, corporations reduce the number of shares outstanding. With profit margins near a 65-year high, they do this to goose quarterly earnings per share—putting lipstick on the pig. They are reducing the number of slices in a pie, but the size of the pie is still the same.

Greedy corporate insiders buy back shares, pump up earnings per share, and hope their stock options go up. That’s not protecting shareholders, it’s self serving.

What the big shots should do instead is return the money in the form of dividends to their shareholders. After all it’s the shareholders that own the company and it’s shareholders that have a right to receive the cash it produces without killing the company.

The golden goose can lay only so many eggs.

profit margin percent

 

 

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E.J. Smith

Editor-in-Chief
E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com.