Key concepts for investing in stocks: What are Buybacks?

Stocks are very versatile assets, as they can be used both to generate income for long-term financial goals, and to save for retirement. But there are phenomena in the market that could suddenly change their value, affecting the performance of all portfolios. These trades include Buybacks, one of the most common on the stock market, and yet perhaps not well known to novice investors.

What does the concept of Buyback mean?

This term in English literally means buyback of shares. It must be remembered that these titles represent the ownership of a fragment of the company in question. Their possession generally gives investors dividends based on the company’s results. This means that, as a company sells these shares, its total share of the profits of the business is diluted. Therefore, when the prices of a share fall in the market, sometimes the issuing companies go to the market to buy them again.

Of course, this is not the only reason that companies might want to buyback your company’s stock. Some do it as part of a strategy to increase the value of their assets in the market. This is because, as there is a lower supply of securities, its price will rise by simple economic rule. In fact, it is a common strategy when there is abundant cash flow.

How would a BuyBack affect my actions?

Many times, companies that run a buyback program open a call among their shareholders to have available securities, offering a premium over the market value, so that people could generate immediate returns on their portfolios. On the other hand, if they had intentions to buy shares of the brand in question and there is a Buyback, it may be more expensive to add this company to a portfolio.

As this example well demonstrates, keeping up with the latest brand and market news and trends can be beneficial to an investment strategy. Through platforms like eToro, people don’t just have a convenient way to buy and sell stocks and other assets for their own portfolios. They also have resources and help from the entire community to stay informed and make better decisions about their estate.

Start buying and selling stocks wisely

eToro is a regulated entity, in Europe by the Cyprus Securities and Exchange Commission and in the UK by the FCA. Likewise, it is registered with the CNMV within the Investment Services Companies section of the European Economic Area in Free Service. It also has the Australian ASIC regulation. This content is for informational and outreach purposes only and should not be considered as investment advice or recommendation. Past performance is not an indication of future performance.