When the stock market rises, we frequently think it is because the value of the company increased and the stock price follows suit. However, sometimes it is a function of supply and demand of the company stock.
Supposed Financial Connections has 100,000 shares of stock available for investors. We decide that our stock is a “good deal” and repurchase, from our own cash savings, 10% of our shares. Now only 90,000 shares are available for others to buy. With fewer shares available, the stock prices tend to rise. Reduced supply to meet the demand.
With companies having the ability to bring money from overseas back into the United States, one of their options is to repurchase their own stocks. Other options might be dividends to shareholders, investment in research and development, capital spending, etc.
According to a May 11th article in The Wall Street Journal, “Buybacks Surge, Steadying the Market,” examples of stock buybacks include:
- Apple Inc. – plans to repurchase $100 Billion of stock. The stock price increased 4.4% the day following the announcement.
- Microsoft – Repurchased $3.8 Billion. Their stock price rose 14% at the time of this writing