Berkshire Buybacks Spur Market Rally

warren buffett crashA new week begins, and considering what happened last week, there was a lot of anxious investors awaiting the opening bell on Monday. Warren Buffett made it easier on everyone by announcing his plan for Berkshire Hathaway to begin purchasing back its own stock. This move is very interesting, as it is usually Buffett who is critical on companies who initiate to do so, accusing them of "propping up" stock prices for their own companies. He, however, said when there is added value, the move can be very worthwhile for investors. I guess the the market agreed, as Berkshire Hathaway A traded up nearly 8% today. However, it still remains down over 20% for the year.

Buffett is not the first to initiate buybacks for his stock. In fact, 2011 is already one of the highest volume of buybacks ever. This does not necessarily lead to upward trading in the overall markets. In fact, the largest year for stock buybacks was in 2008, which as many know, was the year that also marked the extremely large drop in the markets. The takeaway is, indeed companies buying back stock can be a very good thing for investors and often causes a short term pop in the price, however, it definitely does not guarantee big returns for that particular company.

Markets took a tumble last week as Bernanke announced his newest stimulus plan for the economy. Many felt that the proposed plan was much less than expected which caused a strong retreat in markets on Thursday. Fortunately, markets have recovered a bit since. However, a negative sentiment is still looming over Wall Street as new home sales continue to remain stagnant and employment is sluggish.

Kodak is seeing record drops in their stock price, as investors' concerns are growing in regard to their ability to reposition themselves as a "printer" company. Risky investors are hoping that indeed the sell off is too aggressive and hoping for a small buy back. At this point, they are clearly at high risk, but where there is risk there is a possibility of good reward right? Too risky for my blood.

We are reaching a very pivotal time in market trading, where the next few weeks are really going to set the stage for institutions heading into "redemption" seasons. We saw the massive sell off in gold on Thursday, as hedge funds were forced to sell, needing to show profits for positions. This indeed could be a trend in the near future, leading to me cool off on the gold investment for the short term. Time will tell. Happy Trading.

6 comments:

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  2. Penny Stock Blog Says:

    I do not believe that many folks realize this about Berkshire Hathaway. When buying shares in warren buffetts holding company they believe they are getting the same deal that someone buying shares in berkshire hathaway was getting in the past. I have heard warren buffett comment in interviews do not buy Berkshire Hathaway stock simply put because of the extreme popularity of warren buffett and his holding company and its great historical record of performance the shares generally trade at a premium not a good value investment. Another thing about Berkshire Hathaway that Warren Buffett has commented about in interviews is because of the enormous size of Berkshire hathaway the holding company is forced to buy large cap and mega cap stocks which generally do not deliver real large returns. But in spite of all of this talk from Warren Buffett many investors fail to heed his advice

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