Baby got (buy)back

SHARE BUYBACKS. SOURCE JONG-COOK BYUN & PHAN BAO TRUNG, INVESTING.COM, VIETECON.COM

There were a few reports out today about how big share buybacks were in the US in 2018. Goldman had expected as much as $1 trillion in share buybacks, but that was a bit too optimistic (pessimistic? depending on your viewpoint), and only $806.4 billion. That’s a lot! Of course, it was helped by the corporate tax cuts . And it turns out that there just isn’t that much to invest in, or most corporate managers don’t think so. If you are looking, you see that in the big volumes of money chasing Lyft right now - investors are looking for anything to invest their money in.

As I was reading all this, my mind started to wander to Vietnam, as it is wont to do, and I wondered what the trend has been here. Surprisingly, I wasn’t the first to look at this. There is a good report (here) that examines share buybacks from 2005-2014 in Vietnam. It turns out that there weren’t that many buybacks (122 firms bought back in that period). Interestingly, the authors reach the conclusion that the main reason Vietnamese managers buy back stock is because the value is low. And that shares outperform after the buyback. The subsequent outperformance was quick but didn’t persist for small firms, but for larger firms it took longer but lasted.

If this is still true, here’s a way to make some easy money: buy when companies repurchase shares! Simple as that. If you do, you will outperform the market, at least according to this data. (Note that some of the outperformance is due to the period studied, including up to 5 days before the buyback announcement - so maybe you have to know a buyback is happening, which is harder to do).

In undergrad, a portfolio manager for a small fund came through and said that their whole strategy was similar. They just bought with insiders and sold with insiders, with the heuristic that managers know their companies better than investors do.

Counterpoint: Enron. (See this story titled: Enron workers lost everything.)

I will have to do more work on this to see if it persists to this day. But it is an interesting data trend. Companies continue to buy back shares in Vietnam, so something to watch out for.