Jeremy Grantham: Stock Price Manipulation

Johnny HopkinsJeremy GranthamLeave a Comment

In his latest interview on The Long View Podcast, Jeremy Grantham discusses stock price manipulation. Here’s an excerpt from the interview:

Grantham: Corporate buybacks have been the shining number one driver of this 11-year bull market and has changed everything. And then, with the stimulus program, of course, the individuals came back quite suddenly, and in many cases, unexpectedly, not just unexpectedly in the numbers and the amount, but in their style. The meme stock style of investing is something no one has ever seen before happily.

Hopefully, we’ll never see it again. But it did take basically worthless stocks like GameStop up 110 times in a month and 40, 50 times for AMC, the movie chain. These are levels of craziness that we had not seen in 1929 and even in the era, in my opinion. There was more money involved, bigger moves involved than we had ever seen.

But to get back to your point–individuals came storming in at the end, buying their own stocks by hand, not moving into institutional-type mutual funds. And the whole time, corporations were buying their stock back. Why wouldn’t they? It’s a safer way to invest their cash flow than developing new ideas of their own. And they would rather go out and buy a company from the venture capital industry as a capital transaction.

Why would they risk income transactions by developing their own new ideas? So, they’re basically outsourcing to the venture capital industry. And that’s the same kind of attitude that is represented by buying your stock back. You know exactly what you’re getting, you know what it costs, you know what the effect is.

You get rid of the weak holders of the stock, and it helps push the price of the stock up. The fact that it should not in an efficient world is irrelevant. In the real world, you get rid of weak holders, and steady buying pressure on stocks pushes the price earnings ratio up, and their stock options benefit. 85% of the remuneration comes from direct stock grants and from stock options.

Why would they not put management of the share price as a top priority? I avoided the word manipulation, but I was very tempted to use it.

You can listen to the entire interview here:

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