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Recently, A company I have invested in offered to buy back a certain percentage of my shares. I've been considering this proposal and here's what I think.

Say I bought 10 shares in this company over a period of time such that my average buying price is Rs.100, bringing the total value of my investment to Rs.1000 ( 10 shares * Rs.100, the price of a share)

Today, the market share price has gone way down to say Rs. 50, thus putting the current value of my investment at Rs. 500 (A 50% fall)

If the company is willing to buy back 30% of my shares i.e. 3 shares at Rs.110 each, I'm thinking, it makes sense to sell the 3 shares for Rs.110 each, giving me Rs.330 in cash. With this cash, I can go back to the market and buy more than 3 shares since 330/50 is 6.6.

While the prices in reality aren't exactly as described, it does accurately represent the situation I am in. Am I right in thinking that I should participate in this buyback and then immediately invest it back into the company or are there other factors to consider before participating in a buyback ?

The company in question in a PSU and pays a hefty dividend by Indian standards.

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If you are offered more than the shares are worth (in your opinion) then you should sell. Do you think you will get more than 110 per share if you hold on to it? If yes, don't sell. If no, sell.

What you paid for the shares doesn't matter at all.

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  • Another thing to consider is liquidity. Is this stock publicly traded on a stock exchange? If not, you may be hard pressed to find a different buyer at a reasonable price.
    – TainToTain
    Commented Feb 26, 2019 at 0:19

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