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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)

#41

Post by JDDunn9 »

knughit wrote: post #19
JDDunn9 wrote: post #13

Earlier quoted context omitted.

> a company which executes a share buyback will have no change in its stock price... this is also exactly equivalent to distributing profits in the form of a dividend This is false (conditionally). Most valuations look something like: earnings x growth + cash. If you have cash that you cannot reinvest at the same ROI that you have been growing at, you can increase shareholder value by removing the cash element, since…

Finance theory disagrees with you. A dividend lets the investors choose if they want to buy more shares (from the same sellers who would sell in a buyback) or mix their current shares with the cash.

Investors buying more shares with dividends doesn't decrease the number of shares outstanding. If you increase the share price without decreasing the share count, you have created value out of thin air and are saying the company was more valuable without the cash than it was with it.

The key is the asymmetry of information. The market price should reflect all public information. However the company has non-public information, which puts them in the best position to judge if money is best invested inside the company or out. Share buybacks are a legal form of insider-trading.

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

#42

Post by joshdickson »

brisance wrote: post #39
nickpsecurity wrote: post #20

Earlier quoted context omitted.

"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...

No. The goal of M&A is to increase shareholder value, if the data said acquisitions generally do not do that, we would not have M&A. Your links simply show that some M&A scenarios (major acquisitions, acquisitions that are overpaid for, etc) lead to underperformance, not that M&A as an overarching thing "typically leads to the destruction of shareholder value." Nowhere do those articles say that.

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

#43

Post by viraptor »

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…

Isn't the whole point of pensions to make sure people actually invest and retain the money until retirement? If you could invest it in anything you directly control, then you could easily get the whole sum out whenever you want (defeating the purpose of pensions). I don't see this specific point as having anything to do with corporate overlords.

As a national program, it's better if your pension is delayed, rather than your investment completely failing and you becoming homeless and sick at 62.

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

#44

Post by baus »

wlievens wrote: post #30
baus wrote: post #14

Earlier quoted context omitted.

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.

Well in theory, if your shares are diluted /2 but the company's capital is x2, and all that capital is used efficiently, you have not lost anything either. Half slice of twice the pie.

That makes sense. It is true the shareholders will own a bigger piece of a smaller pie.

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

#45

Post by phyalow »

JDDunn9 wrote: post #41
knughit wrote: post #19

Earlier quoted context omitted.

Finance theory disagrees with you. A dividend lets the investors choose if they want to buy more shares (from the same sellers who would sell in a buyback) or mix their current shares with the cash.

Investors buying more shares with dividends doesn't decrease the number of shares outstanding. If you increase the share price without decreasing the share count, you have created value out of thin air and are saying the company was more valuable without the cash than it was with it. The key is the asymmetry of information. The market price should reflect all public information. However the company has non-public inf…

Number of shares doesn't matter, enterprise value does and it doesn't change. Your implying that there would be a further equity issuance which doesn't routinely happen on buybacks.

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

#47

Post by djrogers »

cecilpl wrote: post #31
baus wrote: post #14

Earlier quoted context omitted.

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.

People don't invest in companies that merely have cash. Growth and recurring revenue are more important metrics to most

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

#48

Post by nickpsecurity »

brisance wrote: post #39
nickpsecurity wrote: post #20

Earlier quoted context omitted.

"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...

On top of other commenter's remarks, notice I specifically said to acquire companies holding monopolies over aspects of Apple's competition plus opportunities for expansions of current strategies. Hard to imagine a HP/Compaq failure scenario here. Just lost money which the company might loose anyway. Locking in long-term success more might be worth that, though.

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

#49

Post by sabalaba »

carsongross wrote: post #34

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…

Taxing capital gains at 39.6% (our current top income bracket as of 2016) would be bad for business, job creation, and growth in the US economy. California also taxes long term capital gains (LTCG) at a top rate of 13%. It would mean that an investor in California would experience a LTCG rate of 52.6%, the highest in the entire OECD. Capital has legs and having a non-competitive capital gains rate would incentivize investors to allocate their capital elsewhere.

[1] http://taxfoundation.org/article/2016-tax-brackets

[2] http://www.forbes.com/sites/robertwood/2015/03/25/u-s-capita...

[3] http://taxfoundation.org/blog/how-high-are-capital-gains-tax...

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

#50

Post by rtpg »

sabalaba wrote: post #49
carsongross wrote: post #34

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…

Taxing capital gains at 39.6% (our current top income bracket as of 2016) would be bad for business, job creation, and growth in the US economy. California also taxes long term capital gains (LTCG) at a top rate of 13%. It would mean that an investor in California would experience a LTCG rate of 52.6%, the highest in the entire OECD. Capital has legs and having a non-competitive capital gains rate would incentivize i…

This assumes that capital can get the same ROI anywhere in the world, which is not at all true.

If the strongest businesses are based in the US, the US can force investors to play by the rules they want. It's just another part of the equation.

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