Buy High, Sell Low
Norris's column focuses on the allure created when publicly traded companies buy back their own stock (parenthetical comments below are my own):
"One reason investors have viewed buybacks as a positive was that they indicated corporate management and boards were confident (there's that word!) that their share prices were low and that the company would not need the cash for a possible downturn in business.
"Unfortunately," Norris concludes, "there is little evidence that is the case."
Records show that companies typically buy their own stock at the top of the market -- a colossal waste of money. He cites the case of American International Group. In 2007 it spent $6 billion buying back its own stock. In the first quarter of 2008, it spent another $1 billion. And then? Ka-boom. The bottom fell out of the market. Today, AIG would be broke without a massive federal bailout.
And AIG is no exception. Home Depot did the same thing. In the third quarter of 2007, Norris reports, it bought $10 billion of its own stock at an average price of $37 a share. By early this year, the price had fallen to $18. You talk about do-it-yourself investing!
Yessir, Home Depot: You can do it. We can help. Next time, just hang onto the cash.