On Blackouts

Both the WSJ and Bloomberg have run articles this year about the power (or lack thereof) of earnings blackouts.  Both suggest that stock prices can get weak when companies are prevented from purchasing their own stock due to prudence around the possibility (or perception) of trading on insider information.

An astute TPL investor would conclude that buyback blackouts are a big deal for TPL since, well, buybacks are its core competency.

I’m not a statistician, nor do I play one on TV but it does appear to me as if the lack of buybacks is a material driver in month to month price action.  Below is the simple average monthly return of all monthly periods since July 1980.  YTD October 2018 at -8.99% is included as a full month in this analysis.

Note that “blackout” months (my assumption) are highlighted in red and represent 2 of the 4 lowest monthly average returns and 4 of the 6 lowest average monthly returns.  If you consider December a throwaway month (tax planning), the blackout effect gets even stronger.

On the flipside, you really want to own TPL in Feb, May, Aug, and Nov which are the months TPL reports prior quarter earnings.  Reporting is typically very early in the month.  I assume TPL comes out guns blazing after that to do its buying.

monthly average pricing

Source: Bloomberg

7 thoughts on “On Blackouts

  1. Thanks…this was extremely insightful, and explains why for roughly 8 months out if the year there is a constant bid, as they retire 500-700 shares a day. And then none during the four blackout periods.

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  2. Based on previous 10Q reports, trust has been buying back shares every month. So, I don’t think blackout period is an issue.
    Period No.of Shares Avg price
    April 1 through April 30, 2018 2,955 $532.60
    May 1 through May 31, 2018 5,657 648.53
    June 1 through June 30, 2018 7,304 695.99

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    • Thank you! I’ve seen that in the Q before. Not sure why I ignored it when I decided to pull this together. I will have to go back and look at more periods but in the sample above the number of shares purchased in April is much lower than in the other months in the quarter. Perhaps they can only buy for part of the month?


  3. This is a really interesting theory about blackout months that seems to have some grounding in the data you have shown. Please keep this kind of thoughtful analysis coming! But rather than just looking at the cumulative monthly movement in share price, wouldn’t it be more insightful to look at the overall number of shares traded by month? Is this data available? If it is shown that a fewer number of shares are traded in April, July, and October compared to other ones, that would be more evidence that TPL has reduced their buybacks during those months, presumably because of blackout restrictions.
    If there was one secret I could know about the inner workings of TPL, it would be a better understanding around their buyback strategy. It’s never been clear to me whether they try to time (or vary) the purchases based on the price, or if they go into any given year pre-determined that will retire X% of the outstanding shares (typically 2-3% per year). And what impact, if any, does the investment in the water business have on the buyback strategy.

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  4. […] A few posts down, I posited a theory that $TPL share price weakness apparent in the first month of calendar quarters was due to a lack of buying from the trust.  My hunch was that the trust was prohibited from buying due to it having material non-public information in the form of quarterly earnings (blackout).  Some crude analysis showed that my theory appeared to hold water. […]


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