How is the stock portion of your retirement savings going? If you are like most Americans, your portfolio should be doing quite well.
As with any endeavor, as long as you know what you are doing, then you should be just fine.
In other words, as long as the companies you are invested in are making money through increased revenues, then you’ve got a solid investment, give or take the fluctuations that happen in every market cycle.
But here’s a caveat: not every company’s EPS is rising due to an increase in revenue. And that’s what you have to watch out for.
We covered this before in a previous article. But if you’re not aware of this common but not-so-honest tactic, you should at least be aware that it’s happening again.
Two questions to ask yourself:
- What is causing a company’s stock to rise; and
- Are the company’s top execs personally “buying” or “selling” their own company stock?
We’ll answer these questions later in the article.
Stock Buybacks Part II
During the Fed’s QE period, many companies were using cheap debt to buy back their own company stock.
In fact, 2010 - 2017 saw the biggest corporate stock buyback trend in history. With the Fed now in a tightening phase, companies can’t continue what they have been doing over the last decade.
But with the Trump tax cuts, effectively saving corporations up to $60 Billion dollars this year, it appears that corporations are taking those savings, borrowing up to another $80 billion from Wall St. and buying back their own stock again.
They are not putting money into investments, facilities, nor are they on a hiring spree.
We saw this in 2007; then, using shareholder money. They pumped up their bonuses while their shareholders took the majority of the risk. We know what happened afterward. Are we seeing a repeat?
But to address the second question: while they are encouraging their shareholders to buy their stocks, and as they are using debt to buy back their own stocks, what are the execs doing with their own money?
Are they too buying more their own stock for their personal investment?
It looks like they are doing now the same thing they did in 2007. They--the “smart money”--are DUMPING their own stocks.
So if you are holding any of these stocks in your personal retirement portfolio, just be aware that the executives who run these companies are doing the exact opposite.
They want you to buy and hold more of their securities. But they themselves cannot do it. And they can’t do it for one simple reason: it’s too risky.
It’s too risky for them, and they would rather transfer their risk to you. To your portfolio. To your financial future.
Our take? It isn’t worth sacrificing your financial future...or your family’s futures...so that these corporate executives can go home with higher bonuses.
Reduce your risk exposure. Hedge it with gold and silver. Don’t let Wall St. fool you yet again.