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The week that was:
A couple interesting announcements this week about stocks in the MSI portfolio led me to learn about stock buybacks. A company can sometimes choose to buy back it's own stock.
For example, let's say MSI is listed on the stock market with a total of 1000 shares each of which costs $5. So the total worth of the company is 1000x$5 = $5,000. Investors can buy or sell a total of 1000 shares.
Now there is a bear market and MSI stock falls from $5 to $3. As the CEO of MSI, I have confidence in the company's bright future and feel the stock is undervalued at $3. So I decide to buy back $600 worth of shares. At $3 a share, I buy back 600/3 = 200 shares. I can now retire those shares.
That leaves only 800 total shares available for trading.
Price of a stock depends on how many people want to buy and sell shares. If few people want to sell and more people want to buy, then the price of a stock goes up. If more people want to sell and few want to buy, then the price of a stock moves down.
The fewer shares of MSI (800 instead of 1000) can increase the stock price because there is lesser supply of shares for selling.
This week, Twitter announced a stock buyback of $4 billion. Since the stock had already come down from a high of $80 to $36, the buyback announcement was a good move.
Meta (Facebook) also announced they had spent $19 bllion on buybacks in the last quarter of 2021 at an average price of $330. That was clearly a bad mistake because the stock has crashed to $220 this week due to poor results! Surely Facebook management should have known they were facing a tough quarter and should have stopped the buyback instead of wasting billions of dollars of profits.
Sells -
Affirm: Sold 5 at $58.30 (Position closed)
Affirm is a good company with a really smart owner but this is not a good time to be owning fintech shares. Affirm was recently trading above $170 and I had a huge paper profit of 110% but did not sell!
Airbnb: Sold 4 at $171.68
Airbnb is an excellent long term investment. I sold a few shares to book a 12% profit and raise cash.
Dutch Bros: Sold 15 at $52.30
Dutch Bros is among my favorite stocks for 2022. It has held up much better than other stocks recently. I sold at a small profit to raise cash. This company is a good long term investment but appears overvalued right now.
Meta (Facebook): Sold 3 at $231.70 (Position closed)
Meta results were disappointing in many ways and there is a good chance the stock will either go under $200 or remain at these levels for a while. I may re-enter this position in the future because it remains a good company.
Roblox: Sold 15 at $68.47
Roblox is among my favorite companies. The stock was recently trading at over $140. I had a paper profit of 130%! There is nothing wrong with the company. The current environment is not good for companies like Roblox. I want to free up cash and hopefully buy these shares back at lower levels.
Rocket Labs: Sold 10 at $9.92
Raising cash!
Rivian: Sold 2 at $61.24 (Position closed)
Rivian shares were trading at over $170 and I again had a paper profit of over 70%! Instead I am selling at a loss of 40%. I had a small position of only 2 shares so the loss is not that bad. But I should have sold out sooner.
Twitter: Sold 20 shares at $37.12
I like Twitter and think the stock will appreciate significantly under new management. Like Roblox, I am selling shares to raise cash and hope to buy back at lower levels soon.
Buys -
Unilever: Bought 2 at $51.13
Unilever reported quarlerly results that were hit by inflation. The stock dipped slightly and I increased my position. Stocks like Unilever that pay a dividend and sell essential items are a better investment right now than tech companies.
Clorox: Bought 6 at $144.35
Clorox reported poor results recently due to which the stock price has collapsed. It is a blue chip company with one of the best dividend paying records in the market. Their products are bought by everyone even during a recession.
Interesting tidbit:
Splunk (SPLK): After the market close on Friday, Cisco announced they have tried to buy out Splunk which is in our MSI portfolio! It is a good example of an undervalued tech company with a good lineup of products. I am excited to know more details.
What I am watching out next week:
There is a chance the market will suffer downside over the next few days due to many factors. Russia may possibly invade Ukraine which will make oil prices go up. There will be an unfortunate impact on human lives in that region. The Fed may make some surprise announcements that may hit the market. There seem to be a lot of possible negatives and no positives in the days ahead. That is why I have sold a lot of shares this week to raise cash for what may be a tough few days.
While it is not a pleasant time to be an investor, it's not all bad news. The best stock market bargains are found in bear markets. Good stocks can get heavily discounted in a bear market. A share of Starbucks at $75 is a lot more attractive than at $130. It's like getting two pumpkin spice lattes for the price of one!
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