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What is a Stock Buyback? A Simple Explanation for Kids, Teens and Beginners

Introduction to Stock Buybacks for Kids and Teens

This video explains the concept in a simple, concise way for kids and beginners. It could be used by kids & teens to learn about share buyback, or used as a money & personal finance resource by parents and teachers as part of a Financial Literacy course or K-12 curriculum.

What is a Stock Buyback - A Simple Explanation for Kids Teens Beginners
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Suitable for students from grade levels:

  • Kindergarten
  • Elementary School
  • Middle School
  • High School

The topics covered are:

What is a Stock Buyback?

Stock Buyback for Kids Teens Beginners
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A stock buyback, or share repurchase, is when a company buys shares of its own stock back from its shareholders.

This decreases the number of outstanding shares of the company but increases the shareholder value, as each remaining shareholder now holds a larger proportion of the outstanding shares.

Stock buyback is usually viewed as a positive sign by the market, causing the stock price to shoot up as soon as the buyback is announced.

Example of Stock Buyback – Can you give me an example?

If a company had 100,000 shares outstanding, a shareholder who has 100 shares owns 0.1% of that company.

If the company bought back 20,000 shares, a shareholder with the same 100 shares would now own 0.125% of that company, a 25% increase in shareholder value simply due to a reduction in the number of outstanding shares.

This is also usually accompanied by a corresponding increase in the stock price.

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Are there different types of stock buybacks?

There are 2 main types of stock buybacks.

A Tender Offer is where a company offers its shareholders a chance to submit or tender all or a portion of their shares within a predetermined price range. Shareholders who accept the offer specify how many shares they are willing to sell and at what price. After receiving all the offers, the company decides the final price and the number of shares to buy back.

In an Open Market stock buyback, a company buys its stocks from the open market – just like an investor would do – at the prevailing market price. This is done after the company makes the buyback announcement.

Share Buyback - Stock Buyback - Types and Impact on Shareholders Stockholders
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How does a buyback impact existing shareholders?

When a company announces a stock buyback, the stock price usually goes up. If you own stock in the company, you can participate in the buyback or sell the stocks in the open market, and profit from the increased stock price.

If you retain your stock, you can benefit from the future growth of the company.

Why would a company buy back its own stock?

That’s a great question, Sooper Cooper. But that’s a topic for another time…

Download Transcript: Ideal for Use by Teachers in their Lesson Plan to Teach Kids & Teens

What is a Stock Buyback - Part 1
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