Corporations Set Records For Buybacks As Their Insiders Sell

Nevertheless, the Securities and Exchange and Commission (SEC) is beginning to take notice. Commissioner Robert Jackson said during a speech in June, “Right after the company tells the market that the stock is cheap [via announcing buybacks], executives overwhelmingly decide it’s time to sell.”

In a nutshell, the SEC’s own analysis revealed that corporate insiders have been selling a lot more shares after releasing buyback news than before the news. While there’s nothing illegal about taking advantage of post-press-release price bumps, the regulator may seek to curb the “abusive” practice in the near future.

It might be interesting to think of executive insider selling in this way. Warren Buffett recently announced changes in his company’s rules regarding when and how Berkshire Hathaway might engage in stock buybacks. Shares jumped 5% for their single largest one-day gain in roughly seven years.

Now imagine if the Oracle of Omaha sold tens of millions of dollars in Berkshire Hathaway (BRK-B ) shares after the announcement, just as others in the investing world were buying on the news. It wouldn’t be illegal for him to do so.

brkb

I seriously doubt Warren Buffett would ever jeopardize his reputation as a national icon. On the flip side, it is becoming increasingly evident that Buffett is uneasy; he is restless, sitting on $100 billion plus in cash equivalents.

The problem for a value maven? There’s not enough value in the market itself. And for Buffett, loosening the reins to reacquire shares of his own company may be the only prudent thing to do with Berkshire’s cash stash.

Unfortunately, unlike Buffett, insiders at the “techie” corporations with the biggest market capitalization are selling out. Indeed, the process is self-reinforcing. More and more capital is flowing into exchange-traded index funds (ETFs) and index mutual funds. Buybacks reduce the supply of available shares, particularly shares of the FAANG club (Facebook, Apple Amazon, Netflix, Google/Alphabet). Yet the index trackers must pursue ownership of the dwindling supply of FAANG shares, driving prices higher, irrespective of valuation.

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Disclosure: ETF Expert is a web log (“blog”) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered ...

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