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

#251

Post by JimboOmega » Wed, Dec 11, 2019, 7:36 PM UTC

bluecalm wrote: post #240

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.

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.

Yeah, wanted to respond this way. Buybacks are basically a one off dividend. Companies want to return money to shareholders, but don't want to commit to returning a certain amount regularly, so they do buybacks.

Whether the stock is over or undervalued is a bit besides the point, actually. It's a direct flow of cash to investors, that any investor can take advantage if they think the current price is too high (or not, if the price is too low)

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

#252

Post by JackFr » Wed, Dec 11, 2019, 7:36 PM UTC

streb-lo wrote: post #187

JackFr wrote: post #173

Earlier quoted context omitted.

> 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.

Are you claiming that a mutual funds' performance evenly benefits anyone with a 401k? In the last 40 years 0.00025% of Americans have tripled their share of the wealth. Of course everyone with a 401k has benefited but they are nowhere close to the main beneficiaries of capital gains.

No. The share of wealth of the top 0.00025% has tripled.

The pool of people people in that quantile is dynamic.

In 1980, that was about 600 people. In 1980 the richest person in the United States was J. Paul Getty. I imagine most of those people are no longer alive.

In 1980, Jeff Bezos was 15, Bill Gates was 24, Larry and Sergey were 6, and Sergey had been living in the United States for 1 year. It's likely that the effect you're seeing is an artifact of the role technology plays in the economy rather than exploitation or rent seeking.

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

#253

Post by throwaway2048 » Wed, Dec 11, 2019, 7:37 PM UTC

tboyd47 wrote: post #249

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…

> 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. I thought the reason for a stock buyback was that the board believes the stock is undervalued. I can't imagine investing in a company that borrows loads of money from the government just to hand it back to shareholders. That sounds like a…

Unfortunately, its also a very easy signal for flailing companies to convince investors that their stock is undervalued.

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

#254

Post by sriram_sun » Wed, Dec 11, 2019, 7:37 PM UTC

R&D is an investment. So are buybacks. The powers that be have made the call that at this moment in time buybacks happen to be more lucrative than R&D. There is significant investment in R&D going on - happening in the form of investments in startups which will be targets of acquisition later on.

Tangential thought: Startups are experiments that validate theories on product - market fit by generating positive cash flow. As a corollary, if you are a startup, your developers should be focused on validating that theory (iterating on MVP) and not fondly reminiscing and recreating Ginfrastructure(TM). Post acquisition, there will be a rewrite.

As there is a drop in internal R&D, there will be a corresponding rise in acquisitions now or in the next few years. So it is a good time to be working in a startup - preferably one that is making money!

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

#255

Post by neffy » Wed, Dec 11, 2019, 7:37 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…

Markets can be gamed just like anything else.

In this case, companies are exploiting a short term feedback loop around taxation and share price, to funnel money into the executives and primary share owners.

In the long term -- the next crash will be a doozy.

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

#256

Post by throwaway2048 » Wed, Dec 11, 2019, 7:42 PM UTC

JackFr wrote: post #180

rjkennedy98 wrote: post #6

Earlier quoted context omitted.

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.

Guess who lobbies for these "unintended" consequences...

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

#257

Post by treis » Wed, Dec 11, 2019, 7:44 PM UTC

bsanr2 wrote: post #121

xt00 wrote: post #95

Earlier quoted context omitted.

The companies are in many cases doing things like this: 1) their revenue they classify is centered in a different country like Ireland 2) they setup a massive line of credit with an international bank 3) they take out massive loans against the money they have “overseas” that is not taxed 4) they then pay the buybacks and other things to their investors with that loaned money in US 5) they then pay back the bank at th…

What I don't understand about this is... Why can't I partake? If my employer is based out of these havens for tax purposes, why can't they pay "me" by paying into the bank account of the foreign on-paper-only company I own, whose line of credit with a foreign bank I then use for my own expenses? I feel like this must be against the law somehow, but I don't quite understand where the line is.

It's pretty straightforward to determine where someone works. You are physically in the USA when you do the work so you're on the hook for income tax. What the companies do is set up a bunch of companies in different locations. Then they manipulate their books so that the low tax companies show profit while the high tax locations don't.

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

#258

Post by throwaway2048 » Wed, Dec 11, 2019, 7:45 PM UTC

thehappypm wrote: post #153

pinkfoot wrote: post #146

Earlier quoted context omitted.

> 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.

Just think how wealthy they will be when they inherit all those stocks from the rest of the human race!

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

#259

Post by kgwgk » Wed, Dec 11, 2019, 7:47 PM UTC

AnthonyMouse wrote: post #179

nabla9 wrote: post #130

Earlier quoted context omitted.

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 w…

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

I think the idea was that the company is worth $100mn at the beginning and it accumulates $3mn of cash over the year that it wants to distribute somehow to remain a $100mn company.

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

#260

Post by frockington1 » Wed, Dec 11, 2019, 7:48 PM UTC

Redoubts wrote: post #151

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.

Well a bug backlog that long isn't going to motivate execs to improve compensation. If there are too many bugs it might be time to pivot the business