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

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

#211

Post by metalgearsolid »

eloff wrote: post #157

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.

Strongly agree. Elon Musks' $40k USD Cybertruck reveal was one of the first times in years it felt like our present was making some kind of headway into the future, but while also being accessible to common people ($40k truck is still a huge luxury don't get me wrong).

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

#212

Post by yummypaint »

thehappypm wrote: post #143
duelingjello wrote: post #85

Earlier quoted context omitted.

$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…

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.

There have already been multiple mass extinctions in the past driven by global climate shift. There are currently 1 million species at risk of extinction right now, which is a significant fraction of known species. Full on ecological collapse has been happening on all fronts for years, and it still continues to accelerate. "society" isnt responsible for pollinating plants or turning co2 into o2, and it's scary how easily and completely people forget that in just one generation. There is alot of middle ground between billions of humans and thousands of humans, and i think its safe to say if and when we are reduced to thousands that the rest of the planet will be destroyed beyond any hope of recovery.

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

#213

Post by anotherman554 »

toast0 wrote: post #184
anotherman554 wrote: post #49

Earlier quoted context omitted.

No because inheritances can have stepped up basis. It may never be taxed.

The basis step up on death is a byproduct of going through the estate tax. Yes, for the vast majority, the estate tax is $0, but it's not untaxed.

The first 11.4 million of an inheritance would be untaxed.

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

#214

Post by mpalczewski »

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 tax rates are now the same(don't nerdify this, it's correct enough for the point). The reason is that dividends are sticky. You lower the dividend, and stock holders will notice(and sell). You buy back stock, and then later stop, few will notice. Buybacks support stock prices really well for executive stock based compensation, they can sell into the buying which they know exactly when it will happen.

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

#215

Post by ttcbj »

jcfrei wrote: post #125
aczerepinski wrote: post #104

Earlier quoted context omitted.

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.

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.

Most securities have a real intrinsic value that can be calculated the future cash flows to owners from that security. For bonds, the number of variables in this calculation makes this easier to understand: If you have a bond that will pay you $100 one time in one year, then the intrinsic value of that bond is slightly less than $100 (because there is risk you won't be repaid, there is inflation, and there is a cost to waiting to get your $100). If you pay $50 for it, you are getting a very good deal relative to intrinsic value, and if you pay $150, you are getting a bad deal.

This same calculation can be made for stocks based on their dividends and any terminal value from an eventual acquisition. These calculations fluctuate more because dividends are variable.

The parent's comment is right though, its something buffet often observes: If a company buys back stock far about its intrinsic value, it is transferring wealth from current shareholders to now ex-shareholders. If it buys it back below intrinsic value, then it is transferring it from now ex-shareholders to shareholders.

There is actually a wonderful story that illustrates this. Try searching for "buffet pritzker Rockwood & Co arbitrage".

The short version is that Rockwood & Co was sitting on a massive supply of very valuable chocolate, and its stock price didn't reflect the value of that chocolate. Pritzker controlled the company, and announced it would redeem shares for chocolate (a buy-back in chocolate). Arbitrage traders then bought up shares at the low price, redeemed them for more valuable chocolate, and pocketed the difference.

BUT, what they didn't calculate was that the amount of chocolate that remained inside the company was far larger than the amount that was going out to the departing shareholders. Essentially, the chocolate 'payments' for stocks were far below the intrinsic value of the company. So, every time an arbitrage trader traded in shares for chocolate (at a profit to them) Pritzker was actually getting far richer by retaining his remaining shares. Everyone was winning, but Pritzker was winning far more. In the end, Pritzker retained a much higher ownership percentage of an only slightly smaller stockpile of very valuable chocolate, and made a lot doing it.

I think I saw the full version of this story in the biography of Buffet, but I am not sure. It is super fun. It illustrates why a management team that is buying back shares below intrinsic value is helping the remaining owners increase their wealth, and vice versa.

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

#216

Post by triceratops »

hippich wrote: post #163
take_a_breath wrote: post #126

Earlier quoted context omitted.

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?

Retirement accounts are limited by the amount one might deposit annually. The most perhaps one can make is 19k in 401k and perhaps somehow max out SEP IRA - $56k (which I find quite tough to max out). Regular IRAs are out of questions, since at the income level dealing with 401k and SEP IRA, one does not get any benefits of funding regular IRA afaik. So... The best-case scenario is $75k per year someone might be able…

Err...$75k/year over 50 years with 4% real rate of return (pretty modest) gives me over $11m.[1]

1. https://www.buyupside.com/calculators/recurringinvestmentcal...

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

#217

Post by frockington1 »

take_a_breath wrote: post #97
zaroth wrote: post #61

Earlier quoted context omitted.

Triple actually. Corporate profits tax, new hypothetical buyback tax, and then again as capital gains when the shareholder sells.

I pay taxes on my income, on my purchases, on my property and again on my property’s appreciation when I sell.

Get ready for the wealth tax, now the politicians will be able to grab you're money in the intermediate steps as well

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

#218

Post by frockington1 »

ChrisLomont wrote: post #41
papito wrote: post #24

Earlier quoted context omitted.

Yeah, Amazon paid $0 last year.

Since 2019 is not yet filed I assume you mean 2018 as "last year". Here's Amazon's SEC filing for 2018 [1]. They paid 1+ billion on income taxes (page 37) on 11B in profits. They paid billions more in property taxes and other regulatory taxes. Note that annual taxes also are affected by previous year issues. This is why from the same document, same page, you see them paying 1.4B on 3.9B of profit. So getting upset ab…

Apparently facts don't matter when its against the narrative. Sadly, the corporations don't pay taxes meme appears to be well and alive in 2019

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

#219

Post by mpalczewski »

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…

>> Equity is an entirely imaginary value store.

So is money.

>> 80% of last generations Fortune 500s are gone.

Good it's called capitalism. We need creative destruction to move forward.

>> Retirees and the public were left holding the bag.

This!

Largely because the finance industry(or perhaps the world) is run by sales people.

Don't be a sucker, if you don't understand your financial assets in detail(e.g. if you are buying an index fund, understand why, not just based on past performance, go deep, what's the weighting?(currently float weighted which makes it easiest to sell to you, but the worst possible weighting makes it buy high and sell low).

Fuck that's a shit fuck ton of work for just a surface level analysis. But you should do much more research into your mutual funds/stocks than you do your next car purchase.

So yeah, it's not that they were left holding the bag, it's that they were sold free money that turned out to be not so free. Imagine that.

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

#220

Post by TomMckenny »

jcfrei wrote: post #125
aczerepinski wrote: post #104

Earlier quoted context omitted.

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.

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.

If price=value by definition then that means there is no such thing as market manipulation, buy definition. And that the value of exchange traded tulips was in actual fact enormous at one point.

The fact that arbitration actually exists is because there is a disconnect between price and wealth generated solely by information differential.

And beyond an exchange, that, merely because their parent's opportunity cost differs greatly, raising one infant is in fact vastly more valuable than another essentially identical infant.

I would suggest that price is not identical to value, it's just that the market is usually the best way to determine a value.

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