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Corporate Investors Are Awful Market Timers – Here’s Why

U.S. corporate buybacks on pace to set record -- what that means

by Bob Stokes
Updated: November 14, 2018

Corporate insiders do not have a good track record of timing the market.

As examples, their share buybacks reached record highs in the stock market peak years of 2000 and 2007.

A classic Elliott Wave Theorist provided insight:

It may seem that "inside information" should give company managers an advantage in deciding when to engage in buybacks of their own company's stock. On the contrary, their misperceptions are the same as everyone else's. When the market goes up for a long time, corporate health factors strengthen, and when it goes down, they weaken. Insiders misinterpret these indications of their own company's present health as being the same as its prospects.

Yes, those who hold lofty positions within some of the nation's biggest companies are just as much a part of the investing "crowd" as Main Street retail investors.

Robert Prechter's 2017 book, The Socionomic Theory of Finance, showed a chart which provides historical evidence. He says:

CorporateInvestorsHerd

As the chart shows, corporations buy back lots of stock near market tops and very little near market bottoms....

Corporations have lost 126 billion dollars investing in their own shares just from 2013 through 2015, even though the stock market was rising almost the whole time!... These outsized losses are due primarily to two types of herding: on a company-by-company basis and on a timing basis.

Considering the track record of corporate buybacks, look at this Nov. 8 news item from CNBC:

Companies are buying back stock at a record pace this month

The stock market's biggest buying force is on track to post a historic November as corporations resume a rapid pace of share buybacks....

As you might imagine, EWI's analysts are also keeping tabs on other stock market indicators. Every one of them is revealing in its own way.

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