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Technology Stocks : Disk Drive Sector Discussion Forum -- Ignore unavailable to you. Want to Upgrade?

To: Tom Simpson who wrote (3536)	6/8/1998 12:37:00 AM
From: LK2	Respond to of 9256

*OFF TOPIC*A long-winded reply to: Why would a Japanese stock buyback program raise stock prices? A large part of stock prices is based on confidence. I believe that Japanese companies buying back their own stock would indicate a major, significant change in the attitude/belief/actions of Japanese companies (but my belief is not based on a sound knowledge of Japan's stock market. If my points are wrong, then obviously my argument/conclusion is seriously impaired). In the past, Japanese companies spent large sums of money buying the stock of companies they were friendly with. The Japanese banks were also involved. I think the relationship was called Kereitsu or something like that. But Japanese companies buying their own stock is different. These companies are apparently going to be spending serious money on share buybacks, like US companies have done. The article indicates the estimated share buyback at less than 3% of the outstanding shares. A larger buyback would have more power, but the share buyback appears to be a major event. I'm not saying this is a fundamentally/economically sound idea. What it shows is a change in the behavior of the Japanese companies, and a willingness to spend serious money to raise confidence in their stocks (the target audience is the general population, and the investment community). If you take a stock market in general, a large part of the stock's price is based on confidence. Stock prices are related to fundamentals in only a very general, and tenuous way. When most stock prices dropped 50 to 80% or more in the USA in 1973-1974, did the "fundamental value" of the companies drop 50 to 80% or more? When the stock market dropped in October 1987 a massive amount in one day, called Black Monday, did the fundamental value of the US companies change by a massive amount in one day, or was it the stock market value/stock market price that changed? A month or so ago, WDC moved from around 18 to 21 or 22 in a few days. Mark asked why didn't anybody see it coming, which is a natural reaction. We're all trying to make money (or at least, that's what we usually tell ourselves mentally). What news was there to explain the price action, before the stock moved up, so we could have bought the stock? Now WDC is down to around 16, the last time I looked. I think the simplest, and best explanation of WDC's price action is Random Walk. The price action is random. But if you look hard enough, you can find a pattern in the price action. That's natural, as well. We find a pattern because we're looking for one, or because that's the way our minds tend to think, or because we need to find answers to reduce our uncertainty, or we just want to make some money instead of losing our shirts in the stock market. (Part of random walk is based on the fundamental knowledge available to you, compared to what the subsequent price of the stock will do). What I'm trying to say is, Japanese stock companies are trying to build confidence in their stock price. If the Japanese public starts to believe in the Japanese stock market, the stock market will go up. And then the prices could go up even more, as the Japanese public, and foreign investors, start buying because the prices are going up. To a large extent, the stock market is a confidence game (a legal confidence game). Separately, a person could say that El Nino has more effect on the Japanese (or USA) stock market than a major stock buyback program. I'm not looking at the El Nino effect at the moment. What I'm saying is, that this stock buyback program is basically a confidence game, where serious money is being spent to raise the stock price. And that's why the stock price might go up. Regards Larry (with apologies for the extra-long wind)