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)

#131

Post by phyalow » Mon, Apr 04, 2016, 2:26 PM UTC

JDDunn9 wrote: post #126

cowsandmilk wrote: post #121

Earlier quoted context omitted.

No, you are missing the point. There is a value in a future dividend. On the ex-dividend date, the share becomes less valuable because the new holder will not receive a dividend in X days. This X is usually very small, so a share that goes from paying you $5 in two weeks to not paying you has clearly lost value close to $5.

The market cap already reflects the value of all future earnings discounted to the present. The timing of dividend payments is irrelevant. If your argument was true, that a stock's price predictably fell the day after the dividend, investors could simply short the stock and get a guaranteed profit, which is not possible in an efficient market.

> The timing of dividend payments is irrelevant.

False. If I receive cash today I can reinvest it and start earning a return. If I receive cash in a month I have forgone one months reinvestment return.

> investors could simply short the stock and get a guaranteed profit, which is not possible in an efficient market.

False. Well if you are short a stock over ex dividend date then you need to pay the owner of the stock (whomever you borrowed from) 1) the dividend which he has forgone 2) a financing spread equal to a benchmark (e.g. FED Funds + 300 bp's) for the duration you are short.

No offense but you really haven't thought this through very hard.

Also markets are not efficient despite what you read in academia.

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

#132

Post by tomp » Mon, Apr 04, 2016, 2:27 PM UTC

JDDunn9 wrote: post #126

cowsandmilk wrote: post #121

Earlier quoted context omitted.

No, you are missing the point. There is a value in a future dividend. On the ex-dividend date, the share becomes less valuable because the new holder will not receive a dividend in X days. This X is usually very small, so a share that goes from paying you $5 in two weeks to not paying you has clearly lost value close to $5.

The market cap already reflects the value of all future earnings discounted to the present. The timing of dividend payments is irrelevant. If your argument was true, that a stock's price predictably fell the day after the dividend, investors could simply short the stock and get a guaranteed profit, which is not possible in an efficient market.

> that a stock's price predictably fell the day after the dividend,

They do. But you don't usually see this, because the prices are "adjusted", to make price history continuous, same as with stock splits.

Take a look at MSFT (Microsoft) stock price on Yahoo! Finance. "Close" is what actually happened, and "Adj Close" is what you see on the graph.

  Date	          close      Adj Close*
  16 Feb 2016     51.09	     51.09
  16 Feb 2016                             0.36 Dividend
  12 Feb 2016     50.50      50.14

  * Close price adjusted for dividends and splits.

https://uk.finance.yahoo.com/q/hp?s=MSFT

> investors could simply short the stock and get a guaranteed profit

No, to short a stock you need to borrow it first. If you borrow a stock, you owe the dividends that were due in the meantime.

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

#133

Post by eigenvalue » Mon, Apr 04, 2016, 2:29 PM UTC

Retric wrote: post #129

eigenvalue wrote: post #124

Earlier quoted context omitted.

This is not true. You are ignoring the most important factor of all, which is whether the company's share price is above or below its "intrinsic value". Of course, intrinsic value is a fundamentally fuzzy concept, but in some cases the share price is obviously out of line relative to historical measures of valuation (price to tangible book value, TEV/EBITDA, price to sales ratio, etc.). If there is no good fundamenta…

Intrinsic value does not exist. Which is why we have markets in the first place. The obvious way to demonstrate this is you sell 10 shares for a higher price than 10 billion shares.

It's true that intrinsic value is not usually well defined (except in simple cases, where a company is going to be liquidated and has clearly defined assets and liabilities that can be precisely measures, such as cash/marketable securities), but that doesn't mean that a thoughtful investor can't determine a reasonable range of likely values that errs on the side of conservatism. For example, by zero-valuing assets that are hard to quantify, such as an undeveloped plot of land. Or if there is an annuity-like cash flow stream from a long-term contract, one can discount those cash flows to the present using a conservative (high) discount rate. In cases where the share price is way below a conservative downside-case valuation, it's not necessary to know with precision what the intrinsic value might be.

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

#134

Post by JDDunn9 » Mon, Apr 04, 2016, 3:14 PM UTC

tomp wrote: post #132

JDDunn9 wrote: post #126

Earlier quoted context omitted.

The market cap already reflects the value of all future earnings discounted to the present. The timing of dividend payments is irrelevant. If your argument was true, that a stock's price predictably fell the day after the dividend, investors could simply short the stock and get a guaranteed profit, which is not possible in an efficient market.

> that a stock's price predictably fell the day after the dividend, They do. But you don't usually see this, because the prices are "adjusted", to make price history continuous, same as with stock splits. Take a look at MSFT (Microsoft) stock price on Yahoo! Finance. "Close" is what actually happened, and "Adj Close" is what you see on the graph. Date close Adj Close* 16 Feb 2016 51.09 51.09 16 Feb 2016 0.36 Dividend…

The adjusted price reference you made is axiomatic. Adjusted prices simply subtract the dividend. It does not reflect market value. You'll notice the open on the day after the dividend, the stock actually went up $0.40 from the closing price.

When shorting, you only pass the dividends through. The company sends you the dividend, you send it to the original owner, you could still profit from the drop in share price.

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

#135

Post by Retric » Mon, Apr 04, 2016, 3:14 PM UTC

eigenvalue wrote: post #133

Retric wrote: post #129

Earlier quoted context omitted.

Intrinsic value does not exist. Which is why we have markets in the first place. The obvious way to demonstrate this is you sell 10 shares for a higher price than 10 billion shares.

It's true that intrinsic value is not usually well defined (except in simple cases, where a company is going to be liquidated and has clearly defined assets and liabilities that can be precisely measures, such as cash/marketable securities), but that doesn't mean that a thoughtful investor can't determine a reasonable range of likely values that errs on the side of conservatism. For example, by zero-valuing assets th…

Individual investors can define a proxy for intrinsic value. But, overall investors will come up with different numbers. Thus investor A may think a buyback was a net gain, while investor B may think a buyback was a net loss.

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

#136

Post by tomp » Mon, Apr 04, 2016, 3:19 PM UTC

JDDunn9 wrote: post #134

tomp wrote: post #132

Earlier quoted context omitted.

> that a stock's price predictably fell the day after the dividend, They do. But you don't usually see this, because the prices are "adjusted", to make price history continuous, same as with stock splits. Take a look at MSFT (Microsoft) stock price on Yahoo! Finance. "Close" is what actually happened, and "Adj Close" is what you see on the graph. Date close Adj Close* 16 Feb 2016 51.09 51.09 16 Feb 2016 0.36 Dividend…

The adjusted price reference you made is axiomatic. Adjusted prices simply subtract the dividend. It does not reflect market value. You'll notice the open on the day after the dividend, the stock actually went up $0.40 from the closing price. When shorting, you only pass the dividends through. The company sends you the dividend, you send it to the original owner, you could still profit from the drop in share price.

Well, the stock price might have changed because of some news or general market sentiment. I guess I could have found a better example, a stock where the dividend is much bigger (percentage-wise), the effect would be much clearer then.

Edit: e.g. EWM (an ETF, I think)

https://uk.finance.yahoo.com/q/hp?s=EWM&d=3&e=4&f=2016&g=d&a...

No, shorting doesn't work that way, obviously. "Shorting" means you sell he stock, so the new owner gets the dividend, not you. That's one reason shorting equities is very risky long-term.

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

#137

Post by virmundi » Mon, Apr 04, 2016, 3:25 PM UTC

HappyTypist wrote: post #81

makomk wrote: post #67

Earlier quoted context omitted.

> It is a feature, not a bug, that these accounts make it difficult to speculate Except that IRAs do let people invest their retirement savings in risky speculative investments like buy-to-let properties - they just have to give the IRA holding company a cut of they money in fees and pay someone else to deal with the repairs and maintenance, both of which have the effect of making their returns worse.

The previous poster said it makes it difficult, not impossible. Forcing you to pay fees would be a disincentive and discourage people from speculation

The issue is that I'm forced to speculate in the stock or bond markets rather than the property market. The companies providing investment IRAs are practically non existent. I've tried to find them. All I actually find was rumors if their existence.

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

#138

Post by JDDunn9 » Mon, Apr 04, 2016, 3:26 PM UTC

phamilton wrote: post #125

JDDunn9 wrote: post #115

Earlier quoted context omitted.

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.

Profits being flat isn't quite right. Profits being zero is the case where a company issuing a dividend would eventually become worthless.

This is a strawman argument. Cash is not required to be re-invested to maintain current profitability.

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

#139

Post by roganp » Mon, Apr 04, 2016, 3:57 PM UTC

sokoloff wrote: post #89

AnthonyMouse wrote: post #28

Earlier quoted context omitted.

All of them are taxable. Interest is taxable income (to the lender), though it's also a prime opportunity for tax arbitrage so the lenders have a strong tendency to be incorporated in low tax jurisdictions. And buybacks effectively get taxed as capital gains (because they result in higher share prices), but not until the shareholders sell their shares, and of course then it's at the capital gains rate. So what you're…

> So what you're really getting at is that dividends and capital gains should be taxed at the same rate. In large part, they are: https://en.wikipedia.org/wiki/Qualified_dividend

Except that with a capital gain you can choose when realize that gain (and when you pay that tax) whereas the company defines its dividend schedule. But I did not know that was the law...it is always/everywhere repeated that dividends are taxed at the personal income rates (e.g. many times in these comments that is repeated), but that is not true.

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

#140

Post by rsp1984 » Mon, Apr 04, 2016, 4:33 PM UTC

phamilton wrote: post #130

rsp1984 wrote: post #102

Earlier quoted context omitted.

and this is also exactly equivalent to distributing profits in the form of a dividend. I don't see this equivalence. I guess It's rather like settling debt since after a buy-back there will be fewer future dividends to pay. But nothing changes for continuing shareholders, does it?

Assume an investor takes all dividends and buys more shares. Example: Assume 10M shares at $1 each. With a 10 cent dividend ($1M total), an investor with 100k shares (1% of the company) receives $10k. The market cap drops to $9M (since cash holdings decreased) and the stock price drops to $0.90. They then buy ~11k (10k/.9) shares and have 111k shares, or 1.1%. Now instead assume the company does a buyback of 1M share…

Well but that just confirms my whole point. In a buyback the company invests its cash into stock instead of distributing it as dividend. It therefore makes an investment decision for the investor, who never gets to see any cash.

The whole point of giving out dividends as a company is saying to an investor "here, you can invest this cash better than we can". If you're not giving out dividends you think you have better investment foresight than your investors, which may often be true.

What you as a company then do then with the cash, whether you're investing it in R&D, personnel, etc.. or buy stock doesn't change the mathematics of things for the investor, even if the stock you buy happens to be your own stock.