Look beyond buybacks' hoopla and see what insiders are doing

— -- Like Internet dating profiles ("Hot, wealthy Rhodes scholar seeks long-term relationship") and appliance-protection plans ("Honest, we'll replace your clock radio"), some things rarely live up to expectations.

The same is true when companies buy back shares of their own stock. Companies tend to announce buybacks with great fanfare. And though they don't say so, the implication is that the force of their buying will lift the stock. But corporate buybacks are often less than meets the eye. If you're really looking for smart buying, look instead to what the company's directors do.

Investors tend to sit up when they hear about buyback plans, and company analysts often coo excitedly when they hear that a company is buying back its own stock. The implication is that the company feels its stock is such a great buy that it's using its own money to buy some.

And at least in theory, a stock buyback should be a good thing. All other things being equal, if a company buys its own shares and thereby reduces the number of shares outstanding, then those that are left should be worth more.

In practice, though, buybacks rarely live up to their hype. Sometimes, companies announce a buyback but never get around to repurchasing the stock. In addition, many companies don't actually retire stock when they repurchase it. Instead, the stock sits in the company treasury, and the company uses it for other purposes. Companies may, for example, use it as stock awards for employees, or for matches in their 401(k) savings plan.

Now, it's better for the company to have the stock on hand when it wants to dole it out to employees, rather than having to buy it or issue more. Still, buybacks may not be the best use of a company's cash.

Let's say a company has $500 million that it can use for anything it wants. It can start a plant in Paducah or build a complex in Calgary. Instead, it uses that $500 million to buy its own stock — a move that indicates, at the least, a lack of imagination. Management should be able to think of things to do with a company's cash. That's its job.