From Sean Goldsmith in the S&A Digest:

Executives of publicly traded companies are notoriously bad capital allocators. They overpay for companies. They make purchases using stock when it's undervalued. They pay cash when the stock is dear. And they repurchase shares at the worst times.

It's no surprise that today, U.S. companies are buying back shares at the highest rate in four years. A Bloomberg report attributed the purchases to companies "taking advantage of record-high cash levels and low interest rates to purchase equities at valuations 15% cheaper than when the credit crisis began." Companies have authorized more than $453 billion in repurchases this year, putting 2011 on track to be the third-highest annual total behind 2006 and 2007. Do you remember what happened after 2007?



"If the corporate community really agreed on the idea [that] we're heading to a recession, they wouldn't be buying back their stock," James Paulsen, chief investment strategist at Wells Capital Management, which oversees about $333 billion, told Bloomberg. "That says something about their expectations. That's a testament from CEOs, corporate managements saying they are way undervalued and they have a positive outlook on the future."

Our friend, expert resource investor Rick Rule, likes to say, "you're either contrarian or a victim." We know which camp Paulsen falls into. We hope you won't make the same mistake.

More on stocks:

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Top manager Tepper is dumping many of his stocks

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