S&P 500 Buybacks Now Outpace All R&D Spending in the US • Hacker News Board

Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US

#101

Post by iav » Wed, Dec 11, 2019, 4:05 PM UTC

1. For mature tech companies selling high margin products, R&D is typically 8-16% of revenue while operating profit margins are 20-40% of revenue. Even after taxes and interest, it’s natural for buybacks to exceed R&D

2. Not all R&D spent is booked as accounting GAAP R&D. Any internal tool for example can not be booked as R&D because it’s not sold to end customers.

3. Companies outside of tech do not report their amount of R&D spend but include it with SG&A. If deemed immaterial then you don’t see it

Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US

#102

Post by Nokinside » Wed, Dec 11, 2019, 4:07 PM UTC

coldcode wrote: post #22

nabla9 wrote: post #3

> drowning out real investment. The conclusion that buybacks are alternative for real investments is wrong. The aggregate change between R&D and capex versus buybacks and dividends is not just some arbitrary decision. ROI from R&D and investments is slowing down for various reasons. Instead of investing more without reason to do so, companies should give profits to owners or pay off excess debt. There is wrong and ri…

Companies (often ones with business both in and outside the US) generally borrow money to pay for buybacks (Apple as an example). So corporate debt goes up, paid out of future earnings if they exist, to keep the stock price up and keep shareholders happy. But it is not making business value which ultimately is what business exists for and should reflect in the stock price. So the price is propped up for some time per…

Apple is really bad example.

Apple did buyback for a right reason. They are drowning in cash. Their debt is not an issue at all.

Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US

#103

Post by jonathankoren » Wed, Dec 11, 2019, 4:08 PM UTC

crazygringo wrote: post #55

try-perforate wrote: post #4

Read an idea in American Affairs in support of taxing buybacks. The logic goes that if all companies have a fiduciary duty to shareholders because the market is the most efficient capital allocator, AND all companies are giving their cash back to shareholders, THEN it must be true that the market can not figure out how to efficiently allocate this $1T of capital. Thus, the government should have “next dibs” for items…

That doesn't make any sense. The market is the most efficient capital allocator because shareholders are the market, not companies. Companies are giving their cash back to shareholders because each individual company thinks their shareholders can better allocate the cash, rather than the companies themselves. This is equally true for both buybacks and dividends. This is because most companies have no wish to operate…

> Companies are giving their cash back to shareholders because each individual company thinks their shareholders can better allocate the cash, rather than the companies themselves.

This is very strange explaination. As stated it sounds like stock buybacks are some sort of altruistic endeavor resulting from some kind of collective shrug.

This couldn’t be further from truth. Buybacks are the result of executive incentives to hit a certain stock valuation. You can either do this the intended way by growing the company’s value by making competing in the marketplace, or you can do it the lazy underhanded way by manipulating the stock market by creating an artificial scarcity.

You don’t get chalk this up to a faceless emergent phenomena when there are a very short list of people on FTC documents who made the decision at each and every one of the these companies.

Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US

#104

Post by aczerepinski » Wed, Dec 11, 2019, 4:08 PM UTC

crazygringo wrote: post #55

try-perforate wrote: post #4

Read an idea in American Affairs in support of taxing buybacks. The logic goes that if all companies have a fiduciary duty to shareholders because the market is the most efficient capital allocator, AND all companies are giving their cash back to shareholders, THEN it must be true that the market can not figure out how to efficiently allocate this $1T of capital. Thus, the government should have “next dibs” for items…

That doesn't make any sense. The market is the most efficient capital allocator because shareholders are the market, not companies. Companies are giving their cash back to shareholders because each individual company thinks their shareholders can better allocate the cash, rather than the companies themselves. This is equally true for both buybacks and dividends. This is because most companies have no wish to operate…

Buying back stock only creates value for shareholders if the stock is trading for less than its intrinsic value. Above that price buybacks destroy shareholder value.

Executives are doing this to meet performance targets and get bonuses. Not to allocate capital efficiently.

Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US

#105

Post by derision » Wed, Dec 11, 2019, 4:09 PM UTC

CyanLite2 wrote: post #76

mrfusion wrote: post #46

I’m not getting this headline. Buy backs are something done with profit. So replace the headline with “s&p 500 Profits now outpace all R&D spending in the US”.

Buybacks are happening without profit. Companies are borrowing money to conduct buybacks.

source?

Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US

#106

Post by LatteLazy » Wed, Dec 11, 2019, 4:09 PM UTC

R&D spending is a badly understood black box. we incentivise miss measuring it with weird tax breaks and complex rules. From an economic point of view, it's not clear that existing firms should be engaging in it: many industries follow model where specialists create new products which are then available to industry via a mix of buying out small firms, licensing their products or imitating them (that seems to be how big chunks of silicon Valley work and also drug discovery and fashion for instance, three quite innovative sectors).

The result is the number being inflated up by firms dodging taxes, down by people working in their garages, sideways by including things and excluding other things based on weird regulations.

Share buybacks are similarly in a weird place: tax rules favour them twice, once when buying back and again when borrrowing to fund that. Plus interest rates are at a record low so that encourages them too.

People have a 1950s model that assumes research is something AT&T do and that the amount they spend is an honest reliable value. But they don't and its not. Some where someone is building WhatsApp 2.0 or 6G comms equipment in their basement in weekends. Their time and energy is counted for nothing in these numbers. And when they sell their company ro Facebook who issues shares to buy it and then buy those shares back (as that's the tax efficient way to buy things), they value they created will be a "buy back" not an "invention"...

Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US

#107

Post by MrFantastic » Wed, Dec 11, 2019, 4:10 PM UTC

duelingjello wrote: post #85

try-perforate wrote: post #4

Read an idea in American Affairs in support of taxing buybacks. The logic goes that if all companies have a fiduciary duty to shareholders because the market is the most efficient capital allocator, AND all companies are giving their cash back to shareholders, THEN it must be true that the market can not figure out how to efficiently allocate this $1T of capital. Thus, the government should have “next dibs” for items…

$1T would be enough seed money to get an international effort moving to solve climate change using emissions targets, ferrous phytoplankton seeding like IRONEX I and/or kelp blooming/capture/sequestration. Much cheaper than the inflated numbers thrown around as arguments for doing nothing / delaying longer that ignore the $200+ trillion destroyed by doing nothing. Deny -> extinction Complain about costs -> extinction…

Global warming will not cause humans to go extinct. We are adaptable and most will just move to better locations.

Polluting our water supply definitely will kill most land based species.

Don't waste your time fighting for something is an inconvenience. Fight for clean water and minimizing pollution.

Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US

#108

Post by paulpauper » Wed, Dec 11, 2019, 4:11 PM UTC

The economy is becoming increasingly automated and dominated by a handful of large, hugely successful companies that can keep printing out the same widget or service over and over , generating reliable, recurring revenue streams. There is no need for research when your competitors are tiny and or non-existent, with no hope of closing the gap.

Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US

#109

Post by habosa » Wed, Dec 11, 2019, 4:13 PM UTC

Thriptic wrote: post #83

Perhaps I'm being simple, but I don't really understand the problem here. Companies are sitting on too much cash that they don't know what to do with. There is only so much that can productively be spent on R&D. If they don't do something with their cash, investors will start demanding a dividend. Once you start giving dividends it becomes hard to stop giving them. To prevent perpetual dividends, companies perform a…

But what's wrong with perpetual dividends? I think the relationship between investors and dividend-paying companies is a lot healthier than non-dividend-paying companies.

If buy 1 share of DividendCorp I can rationalize it as a stream of future dividends generated by the company's profits. I want the company to succeed in the short term and the long term.

If I buy 1 share of OtherCorp which pays no dividends I am purely speculating on the price. I don't even have to care what the company does I could just be one of those "technical analysis" people riding chart waves. I just need to pass the bag to someone else at a gain.

Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US

#110

Post by bduerst » Wed, Dec 11, 2019, 4:13 PM UTC

rjkennedy98 wrote: post #6

try-perforate wrote: post #4

Read an idea in American Affairs in support of taxing buybacks. The logic goes that if all companies have a fiduciary duty to shareholders because the market is the most efficient capital allocator, AND all companies are giving their cash back to shareholders, THEN it must be true that the market can not figure out how to efficiently allocate this $1T of capital. Thus, the government should have “next dibs” for items…

At the very minimum it should be taxed the same as dividends. Essentially tax buybacks are a tax loophole for giving money back to the shareholder.

Not really. Dividends are payments, whereas buybacks are assets changing hands. There's a difference from both a finance and accounting side.

Simple example: Dividends can be made ad nauseum; Buybacks can only be made as long as there are outstanding shares.