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I believe that stimulus will be introduced in the US with clauses that prevent stock buybacks.

I want to speculate that if the stimulus gains traction, then genuinely undervalued stocks will be worth aggressively buying at the bottom.

However many corporations openly admit and celebrate that over the last decade they have gorged on cheap stimulus money from the last crisis by issuing bonds and purchasing their own stock.

Many, if not all of those, will demonstrate that their growth was illusory, not organic fundamental growth, but merely a credit fueled bubble. For example, I saw a report that over a five year period post crisis, Pfizer spent the equivalent of 70% of its profits on buy backs, dividends and exec bonuses. In this case, if true, primary research into new molecules was stifled as a result and so their fundamentals are in my opinion not as good as what they should be.

Here, amidst the covid19 paralysis, we see Hilton Hotels spending 2 billion not on staff support, but on their own share price:

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I found this site for example, but is it comprehensive? How are stock buyback announcements made and are these announcements voluntary? If they are mandatory, are those mandates somehow circumvented? How can I determine which stocks have been up till now artificially inflated with buy backs in the US.

EDIT: I am beginning to understand that the question I really want to ask is:

  • How can I determine if stock buybacks have been carried out.
  • How can I determine if the firm has been using buybacks to prop up share price at the expense of intrinsic value.
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    Dividends inflate a company’s market capitalisation just as much as buybacks. Buybacks are simply a more tax-efficient way of distributing profits to shareholders (which is the purpose of a publicly quoted company), because capital gains are taxed more lightly than income in many jurisdictions. – Mike Scott Mar 23 at 8:13
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    @MikeScott I doubt very much that "Dividends inflate a company’s market capitalisation just as much as buyback". However, that is beside the point. I would like to understand how these buybacks are announced and where they announcements can be found.... But thanks for the tax rule insight. That was new to me. – Frank Mar 23 at 8:25
  • @MikeScott I checked that and this quote: "Some people used to argue that buybacks were a more tax-efficient means of distributing money to shareholders than dividends. But that has not been the case since 2003, when the tax rates on long-term capital gains and qualified dividends were made the same. " It's a fairly old quote but can you help me verify this? – Frank Mar 24 at 7:27
  • That's probably right, for shareholders in the US. But not all shareholders of US companies pay their taxes in the US. – Mike Scott Mar 24 at 7:28
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How are stock buyback announcements made and are these announcements voluntary?

Under SEC rule 10b-18, companies are required to disclose their stock buyback programs in their quarterly and annual reports.

Normally they also announce them in a quarterly announcement or other public forum, as they're generally perceived as positive development for the company's shraeholders.

If they are mandatory, are those mandates somehow circumvented?

Generally, companies don't want to hide the fact they're buying back stock, since it tends to increase the value of the stock.

If they did deliberately omit this information from a quarterly or annual report, it would be a very serious failure of corporate governance and lead to serious consequences for the company.

How can I determine which stocks have been up till now artificially inflated with buy backs in the US.

It's unclear why you think the increased value of your shares of a stock due to the company's buyback program is "artificial". If you own (for example) 1% of the outstanding shares of a company, and through a buyback program, they remove 10% of the shares from the market, you now own 1.111% of the company rather than 1%. If the inherent value (whatever that is) of the company hasn't changed, your assets are now actually more valuable and there's nothing artificial about it.

However, if you truly don't wish to invest in companies that have stock buyback programs, you can read their annual reports and not invest in those companies.

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  • Thank you. To answer your question, for three reasons that I can see : a) they were using post crisis cheap money issuing bonds to do so b) because in the case of Pfizer for example they spend the equivalent of 70% of their profits doing this while primary research suffers, so their fundamentals are compromised. c) buying on the stock market raises the price In the new coming crisis, cheap money and buy backs will likely be turned off. But I am open to being educated. – Frank Mar 24 at 5:22
  • Please have a read of this hbr.org/2014/09/profits-without-prosperity – Frank Mar 24 at 5:49
  • And this wormcapital.com/insights/stock-buybacks-bill-lazonick – Frank Mar 24 at 6:15
  • The question for me is if 10b-18 will be rescinded or effectively postponed for the duration of the new stimulus packages. Or if nothing happens at all. In the latter two cases we see companies wait it out but lose their stock market prop and share price continue to fall. In the first case we should see long term improvement in actual fundamentals, which would make some of those attractive purchases. – Frank Mar 24 at 6:19
  • Finally...it seems that while the program can be announced, the actual buyback is not. So I think this answer as it stands is not complete. – Frank Mar 24 at 7:13
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I believe that a precursor to corporate stock buybacks are insider transactions, at least sometimes. I've not yet identified a good way to identify stock buybacks, but I've been on board when it happened simply by investing based on certain insider transactions.

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  • I am beginning to realise that there is little one can do to predict in advance buybacks. Retrospectively, one can get the info, but it seems that in the US all you need to do is announce a buyback program over a long time period and essentially that gives you a shelter under which to carry out insider trading. – Frank Mar 24 at 7:15

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