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

#231

Post by bluecalm » Wed, Dec 11, 2019, 6:57 PM UTC

solatic wrote: post #222

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…

If the purpose of equity buyback is to more efficiently allocate capital, then individual companies executing equity buyback are doing so because can no longer make efficient use of capital by using it to fuel additional growth and higher returns. If that's the case, then equity buyback is tantamount to admitting that the company has no future potential for growth. As a company's stock price reflects expected value f…

The stock price doesn't reflect growth at least not directly. The price reflects expectation of future earnings. If the company is never going to grow but makes stable 1M per year in profit then that company is worth something. Let's say it's worth around 16M as that's around the break even point at which people prefer to have cash over company stock. If now that company uses 1M in yearly profit to buy back shares it's still worth 16M but every individual outstanding share is worth more as it now represents bigger part of the same pie. Therefore after the buyback the share price should increase. We can also say by exactly how much (barring any other new information).

This is finance 101 really. Buybacks are just more tax efficient because they are not taxed at the time of the buyback but at the time the stock holders sell.

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

#232

Post by bullen » Wed, Dec 11, 2019, 6:58 PM UTC

All change requires energy, and we're going to have less energy, so the speed of change inevitably has to go down.

Because the only energy added to the planet comes from the sun and the only viable option to collect that energy are trees and plants.

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

#233

Post by [deleted] » Wed, Dec 11, 2019, 6:59 PM UTC

AWildC182 wrote: post #204

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.

I agree wholeheartedly. The whole world seems to be in a consolidation phase where every innovation from before 2010 is being milked dry (see iPhone derivatives, streaming services, Lithium-ion tech, carbon composites, airliner designs :P, etc...) but very little new tech is being invested in outside of academia (and even within academia sometimes...). Everyone has figured out it's more profitable to rehash existing…

[deleted]

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

#234

Post by Scoundreller » Wed, Dec 11, 2019, 7:00 PM UTC

dahdum wrote: post #178

voxic11 wrote: post #132

Earlier quoted context omitted.

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.

Maybe to the IRS.

But if you’re a foreigner owning US stocks, they’re taxed much differently.

Right off the bat, the IRS withholds 15-30% of dividende paid to foreigners. Not so with cap gains.

And, at least in Canada, US stock dividends are taxed at full personal tax rates.

Cap gains are cap gains, foreign or domestic in Canada.

So I’m all for cutting dividends and doing buybacks.

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

#235

Post by todipa » Wed, Dec 11, 2019, 7:01 PM UTC

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…

Why tax buybacks? Just tax the individual benefiting from that buyback at the appropriate rate.

Taxing buybacks essentially means that you are taxing poor shareholders and rich shareholders the same.

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

#236

Post by throw0101a » Wed, Dec 11, 2019, 7:02 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.

A retirement fund may not want the tax event of a dividend.

A retirement fund needs $x/month: things may work out such that they receive too much cash from dividends in any given month/quarter. So they're receiving, and being taxed on, cash that is not needed.

With buybacks a retirement fund can determine how much money they need and can cash out only what is required, and only take the tax hit on that.

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

#237

Post by Scoundreller » Wed, Dec 11, 2019, 7:03 PM UTC

robocat wrote: post #200

voxic11 wrote: post #132

Earlier quoted context omitted.

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.

Another advantage for many different kinds of shareholders (foreign, non-profit, tax-loss-holders, long-term-holders etc) could be that the taxation rules for buybacks are specific to the shareholder. Dividend and company taxes can really screw certain types of shareholders.

Very true for Canadians.

It also depends on what kind of account the holdings are in. In retirement accounts, it’s all the same.

In our « tax-free savings accounts », we still get hit by IRS withholding taxes that we can’t write off against any corresponding taxes (because there aren’t any).

In a cash account, US dividends are taxed as if they were bond interest.

Capital gains also let stockholders pick and choose which year to crystallize their gains.

I don’t plan on selling some funds until I have a low tax year.

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

#238

Post by [deleted] » Wed, Dec 11, 2019, 7:07 PM UTC

Mikeb85 wrote: post #117

cs702 wrote: post #12

Large US corporations have been buying back their own stock in record amounts, while investors have been cashing out of US stocks at a record pace , recent data shows: https://www.msn.com/en-us/money/markets/investors-bail-on-st... -- money is not being plowed back into IPOs, secondary offerings, etc. According to orthodox economic theory , large US corporations must be buying back stock with earned profits and new d…

Investors might be cashing out because the stock market is at a high. This is literally investing 101. Buy low sell high.

[deleted]

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

#239

Post by bluecalm » Wed, Dec 11, 2019, 7:07 PM UTC

CharlesColeman wrote: post #186

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…

> Read an idea in American Affairs in support of taxing buybacks. Honestly, at their most supportable, share buybacks seem to be just dividends in all but name with different tax consequences (i.e. they're a tax dodge). I'd support a law that declared the only legal way to intentionally return cash to shareholders is via dividends, to close the loophole and increase tax revenues. In other cases, they just seem like f…

But why do that? We accept that if I hope a stock or any other asset which value increases I am not liable to pay the tax until I actually realize that profit by selling. It makes sense to do it this way as well as otherwise you would be losing money to taxes just because the price fluctuates (one year it increase, another it decreases). When the company buy backs stock it actually triggers the tax event: people who sold the stock to the company are now paying tax on capital gains.

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

#240

Post by bluecalm » Wed, Dec 11, 2019, 7:10 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.

Buybacks don't create value. They return the value created by the company to stockholders. They are form of dividends you're just automatically reinvesting it into the company stock instead of getting cash.