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

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

#111

Post by tomp » Mon, Apr 04, 2016, 1:05 PM UTC

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…

> 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.

You're wrong. When the company issues the dividend, the share price falls for precisely the amount issued. So if everybody used that money to buy the shares again, the share price should return (roughly) to the value before the dividend was paid. The number of shares outstanding wouldn't change.

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

#112

Post by eru » Mon, Apr 04, 2016, 1:07 PM UTC

joshdickson wrote: post #23

taneq wrote: post #5

Earlier quoted context omitted.

Does it really count as "spending rainy-day money" if they're spending their cash reserves on buybacks? It seems more to me like they just have literally nowhere else to spend the money other than bringing all those dividends back into the company.

This is right. Though it's not that there is nowhere to spend the money, it's that the company believes there is nowhere that would generate a better return than just buying back part of the company and the money earns nothing in the bank due to low interest rates. Apple has spent a truly staggering amount of money on buybacks, money which it could have, for instance, used to buy Tesla, Spotify, etc. Even after inves…

If Apple's shareholders want to hold Tesla stock, they can just buy it via the money Tesla gave to them via the buybacks. They don't need Apple sitting in the middle.

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

#113

Post by tomp » Mon, Apr 04, 2016, 1:16 PM UTC

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…

You're not paying tax on profit just for fun, you're paying it because you're receiving a service: limited liability. If you don't want to pay extra tax, simply accept unlimited liability and you're set!

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

#114

Post by joshdickson » Mon, Apr 04, 2016, 1:42 PM UTC

rdl wrote: post #82

joshdickson wrote: post #26

Earlier quoted context omitted.

That's not the law of large numbers.

There are at least two widely used "law of large numbers" -- mean reversion is more popular outside finance, and firm size vs market size is probably more popular within finance.

It is used in both situations, but it very clearly only means the former and the latter is incorrect. "Begs the question" is almost always used incorrectly; that doesn't mean its definition has changed.

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

#115

Post by JDDunn9 » Mon, Apr 04, 2016, 1:43 PM UTC

tomp wrote: post #111

JDDunn9 wrote: post #41

Earlier quoted context omitted.

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…

> 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. You're wrong. When the company issues the dividend, the share price falls for precisely the amount issued. So if everybody used that…

You're wrong. The market cap already had the cash priced into it, regardless of how it was used (as a dividend or re-invested). By your logic, a company whose profits remained flat and issued a dividend would become less valuable every year until it was worthless.

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

#116

Post by JDDunn9 » Mon, Apr 04, 2016, 1:45 PM UTC

eru wrote: post #105

phyalow wrote: post #45

Earlier quoted context omitted.

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.

Exactly. If number of shares would matter, share splits would matter.

Market cap = shares outstanding * share price.

Reducing shares increases the price (while keeping market cap the same). Share splits increases the shares outstanding and decreases the price. So... yes, shares outstanding does matter.

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

#117

Post by slv77 » Mon, Apr 04, 2016, 1:46 PM UTC

mrfusion wrote: post #93

Guys what happens if a company buys back all its shares? I've always wondered that.

The last outstanding share of a company is worth the value of the entire company. Selling the last share is typically a liquidation event where all assets are sold to a third party and the cash is distributed to the remaining shareholder. At that point the comany has no value (all its assets having been liquidated) and is shut down.

Lets assume that the last remaining shareholder of Apple made the choice to sell his share to the company for $1 (not a very logical choice). The company still needs shareholders to operate and so the board would need to issue new shares. At that point the could simply grant them to themselves and take control of the company.

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

#118

Post by joshdickson » Mon, Apr 04, 2016, 1:49 PM UTC

eru wrote: post #112

joshdickson wrote: post #23

Earlier quoted context omitted.

This is right. Though it's not that there is nowhere to spend the money, it's that the company believes there is nowhere that would generate a better return than just buying back part of the company and the money earns nothing in the bank due to low interest rates. Apple has spent a truly staggering amount of money on buybacks, money which it could have, for instance, used to buy Tesla, Spotify, etc. Even after inves…

If Apple's shareholders want to hold Tesla stock, they can just buy it via the money Tesla gave to them via the buybacks. They don't need Apple sitting in the middle.

That's not how an acquisition works. It's not about Apple shareholders wanting to hold Tesla stock, it's about Apple potentially wanting to own the company, and that results in Tesla shareholders receiving Apple stock at whatever the agreed upon price is. Apple would not just become an equity investor and buy some Tesla stock, it would assume control of the company.

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

#119

Post by phyalow » Mon, Apr 04, 2016, 1:53 PM UTC

JDDunn9 wrote: post #116

eru wrote: post #105

Earlier quoted context omitted.

Exactly. If number of shares would matter, share splits would matter.

Market cap = shares outstanding * share price. Reducing shares increases the price (while keeping market cap the same). Share splits increases the shares outstanding and decreases the price. So... yes, shares outstanding does matter.

Now you are confusing outstanding shares with market float. Shares repurchased become treasury stock and are now apart of equity.

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

#120

Post by tomp » Mon, Apr 04, 2016, 1:54 PM UTC

JDDunn9 wrote: post #115

tomp wrote: post #111

Earlier quoted context omitted.

> 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. You're wrong. When the company issues the dividend, the share price falls for precisely the amount issued. So if everybody used that…

You're wrong. The market cap already had the cash priced into it, regardless of how it was used (as a dividend or re-invested). By your logic, a company whose profits remained flat and issued a dividend would become less valuable every year until it was worthless.

No, it happens just before the dividends.

Say you own 1 share. It's trading for $20. Tomorrow the company pays $2 dividend. Then your share is worth $18 and you have $2 cash as well.

Alternatively, if you're buying the share, you're willing to pay $20 for it today but only $18 tomorrow, because you know that you won't be getting a $2 dividend if you buy it.

If you take future dividend payments into account, you also need to discount them. If you think that (discounted future dividends) > (stock price), that's a signal for you to buy. If enough investors reason this way, the price will rise until (discounted future dividends) ~~ (stock price).