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

#151

Post by Redoubts » Wed, Dec 11, 2019, 4:58 PM UTC

zxienin wrote: post #139

For technology companies, buybacks signal to me that they have dying (or dead) engineering. It is rather financial engineering at work. One of the kpi at play here is EPS [1], typically used to evaluate CEO performances. To me, this was about numerator increasing over a rather static base. What instead happens, is that denominator is reduced (with buybacks) to jack up EPS value. It amazes me, that most of run-of-mill…

I can understand this. I know my company has a bug backlog a mile long, and some real issues we should put substantial time into; but it would rather have HR put downwards pressure on compensation while pursuing record buybacks. It gives a sense for what the priorities are.

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

#152

Post by JumpCrisscross » Wed, Dec 11, 2019, 4:59 PM UTC

Companies are buying back shares. Individual investors are selling shares [1]. Private equity [2] and VC are raising record sums [3].

Alternate title: financial markets shifting capital from public to private companies. The economy’s R&D engine has shifted. Financial markets are following.

[1] https://www.wsj.com/articles/investors-bail-on-stock-market-...

[2] https://www.wsj.com/articles/private-equity-firms-are-raisin...

[3] https://news.crunchbase.com/news/the-q2-2019-global-venture-...

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

#153

Post by thehappypm » Wed, Dec 11, 2019, 5:02 PM UTC

pinkfoot wrote: post #146

thehappypm wrote: post #143

Earlier quoted context omitted.

I have never heard of extinction as a possible consequence of climate change. Care to elaborate how that might be possible? Even if society crumbles due to unrest, the Earth will be inhabitable in at least some areas. It's hard to imagine that every single human being on Earth will die.

> I have never heard of extinction as a possible consequence of climate change If things get nasty, the nuclear-armed folk might just light up the 14,000 nukes lying around. That could do it.

Still, how would that kill everyone? Small pockets of humanity would still hang on.

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

#154

Post by jfengel » Wed, Dec 11, 2019, 5:03 PM UTC

Retric wrote: post #150

jcfrei wrote: post #125

Earlier quoted context omitted.

I don't think I can follow your argument. What's intrinsic value? The market is supposed to arrive at a fair value for a stock (and there's no reason to assume it doesn't because that would create arbitrage opportunities). If you buyback at the fair value no shareholder value is created or destroyed, the only change is in the ownership of the assets and future dividends.

Companies have non public information and therefore can more accurately price the value of their stocks relative to the market than investors can. This may not apply in the long term, but insider trading is illegal due to this information asymmetry. In the extreme case of a disclosure that will tank the stock price their current investors would be better if the company sold new shares ahead of that announcement. This…

Out of curiosity... are stock buybacks subject to any kind of insider trading rules? I'd imagine that they'd be needed if the executives own stock in the company (or whose compensation is otherwise tied to the performance of the stock).

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

#155

Post by crazygringo » Wed, Dec 11, 2019, 5:04 PM UTC

take_a_breath wrote: post #126

crazygringo wrote: post #98

Earlier quoted context omitted.

The largest beneficiary of buybacks isn't the ultra-wealthy. It's retirees. It's grandma: "Of the $22.8 trillion in stock outstanding... retirement accounts owned roughly 37%, the most of any type of holder." [1] [1] https://www.businessinsider.com/who-actually-owns-the-stock-...

Your data does not say what you are claiming it says. It is possible (or even probable) for the ultra-wealthy to have retirement accounts. Once we admit that, then the obvious question becomes: Who do you think owns most of the money in those retirement accounts, the rich or the poor?

By definition not the rich, since retirement accounts are capped by law to relatively low yearly contributions.

Sure the ultra-wealthy can have their retirement accounts too (if they even bother), but they can't be any larger than anyone else's. Just a tiny tiny tiny sliver for them, really.

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

#156

Post by crazygringo » Wed, Dec 11, 2019, 5:07 PM UTC

boomboomsubban wrote: post #138

crazygringo wrote: post #98

Earlier quoted context omitted.

The largest beneficiary of buybacks isn't the ultra-wealthy. It's retirees. It's grandma: "Of the $22.8 trillion in stock outstanding... retirement accounts owned roughly 37%, the most of any type of holder." [1] [1] https://www.businessinsider.com/who-actually-owns-the-stock-...

Why would a retirement fund want a buyback? They would prefer a healthier company in ten years rather than a lump sum they need to pay someone to reinvest.

1) Because buybacks and dividends are what produce the entire value of stock at the end of the day. 2) Buybacks don't need to be reinvested, they already are by definition. 3) Rebalancing your portfolio due to buybacks is done automatically by your fund that you already pay a small maintenance fee for.

There's nothing unhealthy about buybacks, that's a total misconception that needs to die. They're just treated differently from unqualified dividends for tax purposes.

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

#157

Post by eloff » Wed, Dec 11, 2019, 5:12 PM UTC

This supports Peter Theil's theory that innovation has stagnated. When companies give their profits back to the shareholders instead of investing in continued innovation, because they can't figure out a way to innovate with that capital.

The world needs more Elon Musk type of entrepreneurs.

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

#158

Post by dcolkitt » Wed, Dec 11, 2019, 5:12 PM UTC

JumpCrisscross wrote: post #152

Companies are buying back shares. Individual investors are selling shares [1]. Private equity [2] and VC are raising record sums [3]. Alternate title: financial markets shifting capital from public to private companies. The economy’s R&D engine has shifted. Financial markets are following. [1] https://www.wsj.com/articles/investors-bail-on-stock-market-... [2] https://www.wsj.com/articles/private-equity-firms-are-rai…

Yeah, I don't really understand the negative sentiment here. If a company's buying back stock, then someone's selling those shares. That investor now has extra cash on hand to invest somewhere else. It's not like that capital just gets thrown into an empty pit.

Mature companies returning money is a pretty natural state of affairs. Unless you believe that all growth and investment over the next 25 years is going to be done by exactly the same set of companies from the last 25 years.

That's a recipe for stodgy sprawling monopolistic conglomerates. Competition and innovation is only possible when new entrants challenge entrenched players. And turnover in firms is only possible when capital is transferred from the large, pre-estabilished firms to small, growing ones.

That transfer of capital to innovative challengers necessarily involves large, mature companies returning money to shareholders either in the form of dividends or buybacks.

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

#159

Post by AnthonyMouse » Wed, Dec 11, 2019, 5:14 PM UTC

aczerepinski wrote: post #104

crazygringo wrote: post #55

Earlier quoted context omitted.

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.

> 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.

That's assuming the value of the cash is the same in the hands of the corporation as the shareholders. But if the corporation has nothing it needs the money for internally then the cash is nothing but a liability that it has to waste resources trying to figure out how to externally invest, or have it get infected with principal-agent problems and empire building. The shareholders as more directly self-interested parties may be better equipped to find investments with a better risk-adjusted return.

Moreover, if the company is successful then needlessly holding the cash causes the stock to trade for less than its intrinsic value, because holding cash lowers the company's overall ROI from the above-market returns its actual business is generating to the average of that and the presumably market-average rate of return it collects on the cash. Returning the cash causes the company's share price to adjust (i.e. rise) to reflect the higher returns from its actual business once they're no longer being diluted.

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

#160

Post by Retric » Wed, Dec 11, 2019, 5:15 PM UTC

jfengel wrote: post #154

Retric wrote: post #150

Earlier quoted context omitted.

Companies have non public information and therefore can more accurately price the value of their stocks relative to the market than investors can. This may not apply in the long term, but insider trading is illegal due to this information asymmetry. In the extreme case of a disclosure that will tank the stock price their current investors would be better if the company sold new shares ahead of that announcement. This…

Out of curiosity... are stock buybacks subject to any kind of insider trading rules? I'd imagine that they'd be needed if the executives own stock in the company (or whose compensation is otherwise tied to the performance of the stock).

There are separate rules, but they operate in the opposite direction. The SEC rules give a safe harbor, a type of immunity for enforcement actions for share price manipulation, to firms whose insiders sell when a buyback is announced.

https://www.marketwatch.com/story/secs-jackson-says-research...