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Company Stock Buybacks: Good or Bad?

This is a syndicated repost published with the permission of Money Morning - We Make Investing Profitable. To view original, click here. Opinions herein are not those of the Wall Street Examiner or Lee Adler. Reposting does not imply endorsement. The information presented is for educational or entertainment purposes and is not individual investment advice.

Company stock buybacks sound innocent enough: a stock buyback occurs when a company repurchases its own shares.

But the effect is insidious. Buybacks inflate paper profits without producing anything of tangible value — which means earnings will be inflated and misleading to investors.

That’s why Money Morning Capital Wave Strategist Shah Gilani accuses buybacks of being a large part of the “financial engineering” going on in U.S. markets right now.

More than $6.9 trillion has gone into stock buybacks since 2004 according to data compiled by Mustafa Erdem Sakinç of The Academic-Industry Research Network. And according to Goldman Sachs, stock buybacks will surge by 18% this year, exceeding $600 billion and accounting for nearly 30% of total cash spending.

In the following video, Gilani explains exactly how company stock buybacks work — and how investors can make money in the buyback game:

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The post Company Stock Buybacks: Good or Bad? appeared first on Money Morning. Reposted with permission.

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