From the WSJ: If Corporations Don’t Buy Stocks, Who Will?

Share repurchases by components of the Standard & Poor’s 500-stock index fell to lowest level in the fourth quarter of 2008 since the third quarter of 2004, according to S&P, as companies retreated into a hole, preserving cash as the market tanked.

According to the Federal Reserve’s flow of funds data, released quarterly, the biggest buyers of shares in the 2005-2007 period were U.S. corporations, coming at a time when households and mutual funds were net sellers of U.S. equities. The frenzy hit a peak in the third quarter of 2007, according to Standard & Poor’s, when $171.95 billion in repurchases took place – dovetailing neatly with the market’s peak.

So basically corporations were horrible market timers. They bought their own stock during a big multi-year rally in 2005-2007. Then, when their shares where on sale in 2008-2009 they didn’t buy their own shares at a huge discount.

Thinking about this, a true investor really has to be contrarian. In this case preserving cash in 2005-2007 and then spending that cash when equity prices were cheap starting in 2008. Often the “experts” are wrong. In this case, the best evaluator of a business’s value, the very owner/manager, made a poor investment decision and bought their own business at peak pricing.