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

#171

Post by AnthonyMouse » Wed, Dec 11, 2019, 5:26 PM UTC

onlyrealcuzzo wrote: post #168

AnthonyMouse wrote: post #165

This is a misleading comparison. When you spend money on R&D, it's spent. Somebody is actually consuming man-hours to do work that then can't be used for something else. When you "spend" money on buybacks, it's just moving money around. No scarce resources are consumed, it's just a meta-determination of who gets to decide how to actually spend the money. And moving the money from huge risk-averse corporations to inve…

There's the bit about 60% of money being managed passively, and these passive funds will buy Microsoft stock at $100 or $1M (proportionally). The stock buybacks shouldn't affect the market cap (it's just moving money). It's impossible to know if the buybacks have actually affected market caps, but consensus seems to be that it's increasing market caps. That means you're getting free money from passive funds. Seems li…

That's assuming "passive funds" aren't what huge corporations hold their liquid assets in when they're not used for buybacks. At least 60% is less than ~100%.

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

#172

Post by csomar » Wed, Dec 11, 2019, 5:27 PM UTC

voxic11 wrote: post #132

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.

Don't stock buybacks basically transfer wealth from the company to the shareholders? The major advantage this has over other means of transferring wealth is that shareholders get to realize their gains with only capital gains tax applied, rather then the much higher dividend tax rate.

Plus they might chose not to get taxed by holding the stock.

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

#173

Post by JackFr » Wed, Dec 11, 2019, 5:30 PM UTC

tw04 wrote: post #67

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…

The point is both the companies in question and the ultra-wealthy that are the beneficiaries of the vast majority of these buybacks AREN'T paying taxes, so it's another way for the government to at least attempt to capture the $$ that should already be going into the treasury instead of offshore accounts/subsidiaries/whatever double dutch triple lux tax evasion scheme of the month they're using.

> the ultra-wealthy that are the beneficiaries of the vast majority of these buybacks

The S&P 500 is > 80% owned by institutions. That is mutual funds, pension funds and insurance companies. The main beneficiaries arent fat cats, but rather anyone with a 401k.

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

#174

Post by jdsully » Wed, Dec 11, 2019, 5:31 PM UTC

voxic11 wrote: post #132

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.

Don't stock buybacks basically transfer wealth from the company to the shareholders? The major advantage this has over other means of transferring wealth is that shareholders get to realize their gains with only capital gains tax applied, rather then the much higher dividend tax rate.

No the shareholders own the company so they “own” the cash either way. Buybacks and dividends return control of the cash back to shareholders so they can allocate it elsewhere.

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

#175

Post by sib » Wed, Dec 11, 2019, 5:32 PM UTC

voxic11 wrote: post #132

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.

Don't stock buybacks basically transfer wealth from the company to the shareholders? The major advantage this has over other means of transferring wealth is that shareholders get to realize their gains with only capital gains tax applied, rather then the much higher dividend tax rate.

No - if the price is $X, then the shareholder is exchanging $X in shares for $X in cash. That's not a transfer of wealth.

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

#176

Post by JackFr » Wed, Dec 11, 2019, 5:35 PM UTC

jeiei0ndjd wrote: post #149

rayiner wrote: post #99

Earlier quoted context omitted.

Corporations are paying taxes. US corporate tax receipts as a percentage of GDP are a tick higher than the OECD average. Also, it’s not the “ultra wealthy” primarily benefitting from these buybacks. Most corporate equity is owned by the bottom 99% and pension funds.[1] (Someone with a $5 million retirement account may be very comfortable, but they’re not hiding their money in offshore accounts.) [1] Most corporate eq…

That’s the problem though. Equity is an entirely imaginary value store. What’s the point of the majority holding all the corporate equity when it goes poof constantly? 80% of last generations Fortune 500s are gone. Retirees and the public were left holding the bag. Meanwhile, the aristocracy retains generational control of all real assets. This is another emotional boondoggle, wrapped in numbers to provide some sort…

Nonsense from a throwaway account. Sign your name if you really feel that way.

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

#177

Post by JackFr » Wed, Dec 11, 2019, 5:38 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.

> they need to pay someone to reinvest.

What exactly do you think a retirement fund is, if not someone who get paid to reinvest?

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

#178

Post by dahdum » Wed, Dec 11, 2019, 5:38 PM UTC

voxic11 wrote: post #132

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.

Don't stock buybacks basically transfer wealth from the company to the shareholders? The major advantage this has over other means of transferring wealth is that shareholders get to realize their gains with only capital gains tax applied, rather then the much higher dividend tax rate.

Most dividends are qualified and thus taxed the same as capital gains.

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

#179

Post by AnthonyMouse » Wed, Dec 11, 2019, 5:39 PM UTC

nabla9 wrote: post #130

Junk_Collector wrote: post #15

Earlier quoted context omitted.

I've never understood this take. Buybacks cannot be analogous to dividends because they require you to relinquish your stake in the company to realize the gains. It's a public buyout offer, not profit sharing.

They are analogous to dividends. Example: You own 10% of company with market cap $100M. You have $10M. Dividend scenario: company pays 3% dividend, you get $300k. You have $10M + $300k = $10.3 million. Buyback scenario: company buys it's own stock for the same amount. You own 10.3% of the company. You have $10.3 million. If you want, you can sell stock to get $300k in cash. The only difference is that in the buyback…

Slight nit: The math you're using is creating money from nothing. You started off with $10M and by dark magic you now have $10.3M.

What really happens is that you start off with $10M in stock.

With dividends you get $300K in cash, but now the company doesn't have that cash anymore so its value is reduced by $300K, so you end up with $300K in cash and stock which is now only worth $9.7M.

With buybacks you sell $300K worth of stock to the company. Then you have $300K in cash and the $9.7M in shares you didn't sell which are still worth the same amount because even though the company has less cash it also has fewer outstanding shares and those cancel out.

This is ignoring the effect on valuation of separating the business from the cash -- if the business is more productive than the cash then that may indeed make the share price increase, because then you have a more concentrated investment in the more productive business instead of having the investment diluted by being forced to also invest in an ordinary pile of cash that happens to be part of the same corporation.

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

#180

Post by JackFr » Wed, Dec 11, 2019, 5:41 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.

Another word for "a tax loophole" is "the tax law". The fact that ham fisted bureaucrats and legislators create unintended consequences with every "incentive" they put in the code makes it no less binding.