When stock prices plunge who benefits? Smart investors who are certain that the prices will bounce back up will buy the stocks and sell them much later and make huge profits. Recently, when Disney stocks fell, the company bought back 19 Million shares worth $2 billion. Apple did the same thing. When Apple stocks lost $10 prompting investors to panic-sell their shares before they lost more of their money, the company bought back 30 million shares worth $18 billion. It had me wondering, are the stock prices artificially lowered to make investors panic? The companies can then buy back their shares at lower prices?
That's quite an interesting hypothesis you've put forward. I'm not too sure on whether the companies would have artificially lowered the stock prices but it certainly makes to take advantage of the lower stock prices with a share repurchase. Artificially lowering the stock price also sounds like a gamble that could potentially only pay-off once (if you're lucky), but I'm quite certain it counts as a kind of fraud. In my eyes it falls in the category of market manipulation, I believe exchanges would be quite observant on things of this nature. Moreover, I think the backlash from the markets that would come at a company from engaging in such an activity would be quite catastrophic. That being said, in the past we have seen many instances of market manipulation and price fixing. So it's not such a far fetched idea. Now you've got me all paranoid.
Over the weekend I happened to catch a radio interview with Arthur Lipper and he said something very insightful about private investors. As I understood the meaning his thought was that the market has more individual investors then ever before and this is what is contributing to the volatility of trading. His opinion was that unless a private investor does a ton of back ground work on a company it is very unlikely they will have stellar results. The trend is more towards bailing out of a position if there seems to be the least bit of a blip. This leads to the sell off scenarios that we see. Lipper went on to say that larger firms are still the best choice for the casual investor since they have the capital to truly access the level of data that is needed to make informed investment decisions. decisions that go beyond annual reports and press releases. The conversation then went in depth on different factors that can effect a stocks performance that are seldom considered. I read between the lines on what he was saying and took it to mean basically that the guys in the top firms are better connected with some of these companies and have a better idea of long term plans. That is probably a very valid observation. I think regardless of the truth to his opinion, the fact remains simply because of the availability of software to make it easy for the individual to get in on the game, you should expect more market fluctuation then what we saw prior to the computer age. If you have no idea what I mean look at a chart of the Dow set to as long of a period as you can. You will see that the activity does indeed seem rhythmic and no where near as steady and predictable as it once was.
One major thing to think about, most executives get a big part of their pay in other than cash. So shares, options etc. And it 's always the same, the higher the stock price the more they profit from those equities. So no, I don't think it's intentional to lower the stock price. The company itself doesn't profit anything from lowering the share count, the current owners do. This is just smart playing from the companies, a lot of companies have done the necessary paperwork that allows them to buyback their own shares if they feel like it and it's moments like these that give them a great opportunity to do so.
Companies themselves won't likely be lowering their stock intentionally - big trouble would come from that. But there's no doubt that some investors / traders will try to knock a stock's price down legally (and occasionally not legally) to profit from short positions, and perhaps try to hold the stock on it's way back up after they've covered their short position. Bill Ackman has been attackig Herbalife for years. Soros had been waging war on coal companies since 2009, then recently bought millions in stock of 2 coal companies that have been very close to bankruptcy recently. Sometimes smaller unknown investors will even start false rumors about companies - and they will get in trouble if they are caught, which they usually are sooner or later.
I'm not well-versed with stocks but I guess the stock market is a confusing and a nephew who used to work in the stock exchange said it is like gambling. But for the topic of deception, that is a ploy that no one would sell. When the price of stocks drastically goes down, sellers are wary and unless they badly need money, they would hold onto their stocks. Our stock of Piltel - the pager company - was sliding down due to the arrival of the cellphone. From 20 pesos per share, it was down to less than 1 peso in a matter of 1 year. But I guess there were no takers because the writings on the wall was clear.
I don't think a company would do anything like that. It's really not in their interests. But it's well-established that hedge funds and speculators make trades that can, let's just say, determine a market direction that works out in their favor. It's the nature of high finance. Is the market a game that retail investors should avoid? No. Market manipulation has been attempted and executed for generations but that doesn't mean that small investors should assume that they can't make money out of the market.
It depends, just like everything else. From a historical point of view, the stock market will continue to reach higher levels every time after a correction or a crash. But just in case you are right and stuff like this does happen (although I doubt it), this is why your portfolio must be well diversified. Even if a company does this, your loss won't be as big. Anyway, Apple has huge cash reserves. Why should they keep them untouched when there is a good opportunity to buy shares back at a fair price?
