In the face of a flailing stock price, online jewelry auctioneer Bidz.com (NASDAQ: BIDZ) is trying to generate some good headlines with a share buyback. On January 2nd, the first trading day of the year, Bidz actually put out a press release announcing that it had repurchased 100,000 shares of its stock on the open market for $886,000:

“The share repurchase underscores our confidence in the strength of our commerce model and our commitment to enhancing stockholder value,” said chairman and CEO, David Zinberg. “We will continue to use our balance sheet and cash flow from operations to invest in our commerce and repurchase our shares from moment to date in the open market.”

Well it’s good to build out that Mr. Zinberg has confidence in the strength of the trade model. But that doesn’t seem to gel with his frequent sales — the most recent of which occurred on December 17th! Not surprisingly, Bidz doesn’t announce insider sales with press releases. You have to dig into SEC filings for those.

It’s pretty obvious that

Bidz is trying to use buybacks to promote its stock — why else issue a PR announcing a relatively small repurchase? All of that reminds me of what Warren Buffett wrote about buybacks:

“Now, repurchases are all the rage, but are all too often made for an unspoken and, in our view, ignoble reason, to pump up or support the stock price. The shareholder who chooses to sell nowadays, of course, is benefited by any buyer, whatever his origin or motives. But the continuing shareholder is penalized by repurchases above intrinsic value. Buying dollar bills for $1.10 is not good trade for those who stick around.”

Buying back shares on the open market can support a stock’s price, at least temporarily; putting out flashy PRs announcing the transactions serves to pump the shares. Investors should generally steer clear of promotional management, particularly those who dump while they promote — Bidz.com would seem to be a case of just that.

Original post by Zac Bissonnette

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