csearle wrote:GoSeigen wrote:I want a company to issue shares to investors at a low price and buy them back at a high price.
Please forgive me, I don't understand this. HSBC don't "issue" me shares. If I want HSBC shares I have to buy them.
I don't view myself as an isolated shareholder divorced from all the others. Any shareholder is a representative of the class of shareholders, so what happens to the shareholders as a class is relevant to me as an individual. My personal decisions as to my shareholding are evaluated in the light of what is happening to the class of shares. If shares are being issued, they are being issued to me too, as one of the shareholders. If they are being purchased and cancelled that affects me too.
As for personally taking part in issuance of shares I have two options: buy them directly if that is practical, e.g. in a public offering, or failing that buy them from sombody who
can get them from the company. Which way it is done doesn't really matter, what I care about most is that the issue price is "low" and conversely when bought back by the company the purchase price is "high". Buying high and selling low sucks -- I've done it enough times to know.
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If they have a set amount of cash and use it to buy their own shares back at a high price they will be able to cancel fewer shares than if they had been cheaper, obviously. So this rather long-winded process of pushing the share price up with buybacks, so that it eventually trickles down to raising/sustaining dividends, will surely be less effective?
I don't believe share prices are "pushed up" by buybacks any more than they are pushed up by anyone else buying. Share prices are not pushed anywhere by buying or selling, they are set by the most eager/desperate or inept participant in the market at any particular time.
As for returning money to share investors, there are only about four legal ways to do it: 1. dividends, 2. purchase authorised by shareholders, 3. capital reduction authorised by shareholders and high court, 4. issue redeemable shares. If the company has a set amount of money to return to shareholders then the method chosen doesn't really matter, the same amount of money goes out the door. Option 2 has to be an arms-length market transaction so the price at any time is what the markets/marginal shareholders "want" [with the earlier caveat].
As a shareholder I know that the final final value of my shares is nil -- that is where the share price is trending in the long term (unlike bonds which trend to their nominal value). So I want to time my exit for moments when the value of the shares is maximised, if the company happens to be buying its own shares I want them to give me a good price. If that means the company has less money remaining to distribute, well I knew that was going to happen eventually anyway.
When it comes to banks, as I've noted many many times in the past, they are and will continue to be awash with capital. They need to return that capital to their shareholders until such time as they feel that they are able to use it to profitably expand lending instead. If I'm to give up some of my shares I want that to be at a good price especially if the alternative is to be part of a shrinking business that has no immediate use for its capital.
I understand that this thinking can sound upside down, but it has and I think will continue to serve me well in allocating my own funds -- far better than the conventional "Wisdom" that buying shares makes price go up, selling shares makes price fall.
Are you looking at this in a specific context? Sorry to be so thick, please could you help me?
Thanks,
Chris
PS Personally, because I rarely sell, I would prefer to have the cash as a dividend so that I can choose which shares I consider to be cheap at that moment rather than wait for the process above to have any effect.
Again, I don't view selling as selling. I am transacting. I am selling shares but buying cash. Or bonds. Or gold. Or goods. Whatever. To me it's never selling, it's a trade. Same with buying. I'm not buying shares, I'm selling bonds to buy them. Or giving up cash liquidity/fixed price to buy them. And so on.
Obviously if one is a person who views buying as good and selling as bad (including because one sends prices up, the other down -- and I once practically fell out with my wife's cousin because he was horrified that I morally could short a share), then I guess none of this will make any sense. As for me, I have been a bond investor for some 15-20 years, and that very much colours my understanding of securities and how they work.
Hopefully that explains a little...
GS