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Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)

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Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)

#31

Post by cecilpl »

baus wrote: post #14
cperciva wrote: post #6

Remember, in a perfectly liquid market without taxes, a company which executes a share buyback will have no change in its stock price, since the shared redeemed will be exactly balanced by a reduction in the value of the company; and this is also exactly equivalent to distributing profits in the form of a dividend. On the other hand, when the rate of taxation on capital gains is lower than the rate of taxation on cor…

I don't think this is accurate. When a company buys back shares, the shares are retired increasing the ownership percentage of the remaining shareholders. It is basically the opposite of issuing shares and diluting existing shareholders.

Right. The remaining shareholders own a larger percentage of a company that now owns less cash.

Say the only thing my company owns is a bank account with $100 in it. There are 5 shares outstanding worth $20 each. The company buys back one share for $20, so now there are 4 shares outstanding in a company that owns $80.

Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)

#33

Post by wlievens »

joshdickson wrote: post #26
sna1l wrote: post #2

Apple buys back a large amount of stock because that is the only way they can really get any return out of their stock ( http://247wallst.com/technology-3/2016/03/01/why-apple-may-s... ). Unfortunately due to the law of large numbers, for them to grow at even a 15-20%, would require billions and billions of dollars in revenue increases. Seems like the most prudent course of action for them and their investors. Albeit…

That's not the law of large numbers.

That one's more about returning to the mean, right?

Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)

#34

Post by carsongross »

Some day, please let it be soon, corporations will all be treated as big LLCs, with profits/dividends passed through to shareholders proportionally to be taxed at the individual income rates. Couple that with taxing cap-gains as income, since it is, and all this nonsense goes away.

Owners (rather than todays "owners") get their share of profits, rich people pay their share in taxes, good triumphs over evil, and so on.

Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)

#35

Post by wlievens »

virmundi wrote: post #29
xenadu02 wrote: post #25

So many companies with so much profit they literally can't find any way to invest it to generate return. It might make you wonder why wages are stagnant or what the argument for outsourcing to lower labor costs is really about, if you were the sort of person to bother wondering about such things.

I no longer wonder about such things. The simple fact of the matter is that the system is designed to work against wage earners. It focuses on the benefit of our corporate overlords. For example, I use to work for a company as a wage earner. I left, moving my 401k into a self-directed IRA. Since the market has been bad lately, I remained in cash. I want to put that money somewhere else: property. I would love to buy…

If you believ in property appreciation, you could by REIT stocks. Obviously not the same but maybe the closest you'll get.

Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)

#36

Post by ekianjo »

nickpsecurity wrote: post #17
walterbell wrote: post #11

Are there public companies where projected buybacks would result in the company being taken private, after N years?

I've wondered this myself. Companies going back private in general. Curious how often that sort of thing happens and what benefits there are. Also, thought it might happen to Apple when I saw what profits they were making.

> what benefits there are.

Benefits are obvious: you don't have to answer the shareholders for every quarter. You are free to innovate without thinking about short term profits only.

Of course there are drawbacks as well, such as access to Capital. But when you sit on a large amount of cash, this is less relevant.

Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)

#39

Post by brisance »

nickpsecurity wrote: post #20
sna1l wrote: post #2

Apple buys back a large amount of stock because that is the only way they can really get any return out of their stock ( http://247wallst.com/technology-3/2016/03/01/why-apple-may-s... ). Unfortunately due to the law of large numbers, for them to grow at even a 15-20%, would require billions and billions of dollars in revenue increases. Seems like the most prudent course of action for them and their investors. Albeit…

"Albeit you could also argue that using that cash to buy other companies might be worthwhile." BOOM! Especially HW and SW I.P. companies given Apple's market and legal strategy. Yet, it's the road not taken.

Only problem is that a lot of research has been done that show that M&A deals typically leads to destruction of shareholder value.

[1]http://www.efinancialnews.com/story/2012-01-24/large-mergers...

[2]http://www2.warwick.ac.uk/fac/soc/wbs/subjects/accountinggro...

[3]http://www.evancarmichael.com/library/stephen-warrilow/Merge...

Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)

#40

Post by SilasX »

Animats wrote: post #7

This is a consequence of tax law and greed. There are three ways a company can pay for their capital - dividends, interest, and stock buybacks. The first is taxable. Only the last makes options given to executives valuable. The US should tax buybacks and interest as it does dividends. That would put a stop to this.

Or just quit taxing dividends since you're already taxing the same investment return when it appears as corporate profit or capital gains, and adjust the rate for equivalence. Then you save on the collection costs.
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