One of the most over looked Economic stories is the Buy Back strategy

[WCGreen]

put into play by many of the companies listed on the Stock Exechanges...

It goes something like this...

If you have a successful quarter and you find yourself flush with cash, what do you suppose CEO, CFOs and theirs cronies on the Board of Directors might do...

Well, some would look at company projections and decide whether or not to invest those profits in the company by purchasing capital goods or perhaps ad a shift or expand production by a combination of capital and labor spending...

Or declare a dividend and share the profits with the shareholders...

Or perhaps a combination of both investing in the company and rewarding shareholders for their investment...

But dude, that is so old school...

Now on Wall Street there is a fourth strategy in place that does neither. It's the Buy Back strategy. Remember that CEOs, those overpaid and over glorified "rock stars" of the financial world, have, as a primary fiduciary motivation, a mission to increase the value of the stock. This makes the shareholders happy because buying back shares on the open market increases the value of the shares left in the hands of shareholders. The price of the shares increase, major shareholders, who really control who is on the boards of these companies, can then turn around and sell those increased in value shares on the open market and reap gobs of money which would then, of course, be treated as a capital gain and therefor taxed at about the same rate as the babysitter making six bucks an hour. It might not be in the best long term interests of the company, but it sure is in the best interests of the major shareholders...

So this is yet another way how the rich accumulate more and those of us on the other side of that great economic divide are left to deal with a stagnating economy...

It is a legitimate strategy...

But is it one that is ethical in the grand scope of things...

That is a question that I am afraid is never address in the big business schools...

Ethics, we don't need no stinkin' ethics...

That's my two cents...

[Phoebe Loosinhouse]

1. Isn't this just churning their own stock in order to increase the value?

IN essence this seems like leagalized "pump and dump" if the goal is to drive up the stock so they can then sell it themselves at a higher value.

I personally question the legality, but then no one really seems to care to regulate practices like this that corrupt the entire market and violate the little guy's sense of fair play.

[WCGreen]

2. It's done all the time...

Just watch CNBC for a while...

[Phoebe Loosinhouse]

3. I'm not questioning that it's done

I understand the strategy and I still think it's just a more refined version of pump and dump.Your OP stated that the goal was to sell later for an inflated value.

[WCGreen]

6. But it is a legit way to pump and dump...

To sell stocks from the boiler room and then dump your shares when you know the prices is unsustainable is illegal...

To buy back stock from the open market to increase the value of the stock is the legal way to do it...

[madrchsod]

4. that`s why i do`t get excited when the stock market starts to crash

the real value of the stock market is inflated. someday,maybe real soon,the market will correct and we can go from there.

[WCGreen]

5. As soon as you hear people talking about undervalue..

That would be the time to start a dollar cost average investment strategy...