When a company buysback their share, this usually results in a surge in the price of the stock. Why? because of the fact that there is asymmetrical information between managers of the firm and shareholders like us. Shareholders believe that the managers are privy to insider information - how well the company is doing, the consistency of cash flows, growth projections, which are not immediately posted out to the public, unless it is earnings reports day and they are required to do so.
When managers buy back their firm's share, people believe it is because the firm's shares are undervalued. Because the managers "realize" this before the public, they quickly buy it back before the share price increases, so that they can make a investment profit on their own stock for the firm. So, shareholders long the stock, and lead to a surge in price.
This seems like a self-fulfilling prophecy, since if managers just wanted to raise the price of their shares even if it's overvalued they could just buy it back and trigger the shareholders and the public to buy more shares too. But the markets are quite efficient - eventually smart investors will catch on and all of the price increases will come tumbling down eventually.
So it is best to always check the books of the companies first before buying into anything, thats the first step to making smarter investment choices!
When a company buysback their share, this usually results in a surge in the price of the stock. Why? because of the fact that there is asymmetrical information between managers of the firm and shareholders like us. Shareholders believe that the managers are privy to insider information - how well the company is doing, the consistency of cash flows, growth projections, which are not immediately posted out to the public, unless it is earnings reports day and they are required to do so.
When managers buy back their firm's share, people believe it is because the firm's shares are undervalued. Because the managers "realize" this before the public, they quickly buy it back before the share price increases, so that they can make a investment profit on their own stock for the firm. So, shareholders long the stock, and lead to a surge in price.
This seems like a self-fulfilling prophecy, since if managers just wanted to raise the price of their shares even if it's overvalued they could just buy it back and trigger the shareholders and the public to buy more shares too. But the markets are quite efficient - eventually smart investors will catch on and all of the price increases will come tumbling down eventually.
So it is best to always check the books of the companies first before buying into anything, thats the first step to making smarter investment choices!