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Stock Buy Backs – Bad Idea

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Apple 4-30-2013

Apple sells $17 billion in bonds in record deal on Tuesday to initiate dividends and to buy-back shares because the stock has crashed. Buying stock is an investment. When companies buy back shares to placate investors, historically it is the beginning of the end. Many companies did that during the early days of the Great Depression. When the market kept going down and business was under stress, their early attempts to support their share prices resulted in the collapse of the company or its takeover. Buying back stock to delist is one thing. To do so to try to support share prices – VERY BAD!!!! In this case, Apple agreed to pay out $100 billion of its $145 billion war chest. But to do that, they have to bring back the cash from overseas and then pay huge taxes. This clever trick of issuing bonds at low rates now to satisfy shareholders is a clever move. However, shareholders should shut-up or sell. Corporations are not bank accounts. When times get tough, banks will not lend and they cannot sell new shares or borrow from the market. Shareholders are DEAD wrong on this one. If they were good traders, they should have sold their shares at the top. It was a clear bubble. They wining is like going to a casino better on red at the roulette where, and when they lose, ask for a portion to be returned. Get real – you are either a trader or an investor. You cannot be both. Traders lose when they get married to a trade. That is the number one rule of trading – NEVER NEVER NEVER NEVER NEVER marry the trade. Only fools do so.