Quant Macro Investing

Risk Taking Disciplined

Aggregate Buyback Activity a Useful Stock Market Indicator?

September 16, 2009 – Aggregate Buyback Activity a Useful Stock Market Indicator?

A reader noted and asked: “Today’s issue of USA Today has a story about a big drop off in company stock buybacks. Any idea what that has predicted in the past, if anything?”

See “The Stock Supply Cycle”: “Results appear to indicate that firm executives are not especially good timers of the aggregate stock market.”

There are other studies profiled at “Blog Synthesis: Buybacks and Secondaries”, but they are mostly company-by-company rather than aggregate stock market studies. The company-by-company studies generally (not universally) indicate that corporate managers probably have some ability to time their own stocks.

A principal advocate of aggregate issuance/buyback activity (net change in equity trading float) as a broad stock market indicator is TrimTabs Investment Research/Charles Biderman (see “Charles Biderman, Going with the Flow”). Buybacks represent a part of the change in float.

September 17, 2009 - Posted by | Indicator setup

1 Comment »

  1. Keeping an eye on when the management/corporate buy back or disposes is one of my “Follow the Smart Money” strategies. According to my observation of the previous 2 years, there are a few direct relationships between their action and the prices in the HK market.

    Sometimes they bought back simply because the firm has issued options as salary for employees. In another example, I recalled the Chairman of Tencent (700.HK) underweighed his company shares heavily because of his financial planner’s suggestion for “More Diversified Asset Allocation”.

    In some cases, when some key people (Management or some influential smart investors) underweighed, the market players would absorb these stocks, making the price of the stock skyrocked further. Example: PetroChina (857) reached new height of $19 HKD after the stock was underweighed by Warren Buffet in 2008 at a price of roughly $13.

    Comment by Angelo | October 14, 2009 | Reply

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