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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

#281

Post by Balanceinfinity »

Totally amazed that share buybacks are controversial. If a company believes its shares are undervalued, and the best place to use its capital, then it should buy them back. In the same way, if a company decides retiring debt is in its best interest, then it should use the money that way instead (and that often happens when it has high priced debt in the markets that's callable and interest rates fall). Comparing share buy back and R&D makes no sense. Would we rather have Apple invest in R&D that it doesn't believe in, just so it has a place to put its money? If companies couldn't buy back their stocks, they most likely would pay dividends or just bank it (which is what Apple did for decades), and the share price would rise anyway.

Share buybacks don't dodge taxes - at least not directly. They allow the price to rise for those people who aren't selling (in the same way that banking the money would).

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

#282

Post by gbear605 »

OscarCunningham wrote: post #202
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…

> In reality, executives and directors could very well be authorizing stock buy-backs to keep share prices up so their stock options remain in-the-money for as long as possible. If that's the case, the buybacks are meant more for the benefit of executives and directors than for the benefit of the business or its shareholders. This plan shouldn't work because buybacks shouldn't cause stocks to rise unless the market t…

That’s only true as long as the buybacks are done using a cash pile. There are a lot of companies that, instead of trying to grow, give dividends to their investors (think utility companies). Their stock prices tend to be pretty stable, since their inherent worths don’t change much. Suppose there is a 100 million dollar power company that instead of giving dividends of 1% per year, they instead bought back stock with that money. We would expect the stock valuation to go up by about 1%, since it’s now 99% of the stocks holding 100% of the 100 million dollar business.

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

#283

Post by OscarCunningham »

gbear605 wrote: post #282
OscarCunningham wrote: post #202

Earlier quoted context omitted.

> In reality, executives and directors could very well be authorizing stock buy-backs to keep share prices up so their stock options remain in-the-money for as long as possible. If that's the case, the buybacks are meant more for the benefit of executives and directors than for the benefit of the business or its shareholders. This plan shouldn't work because buybacks shouldn't cause stocks to rise unless the market t…

That’s only true as long as the buybacks are done using a cash pile. There are a lot of companies that, instead of trying to grow, give dividends to their investors (think utility companies). Their stock prices tend to be pretty stable, since their inherent worths don’t change much. Suppose there is a 100 million dollar power company that instead of giving dividends of 1% per year, they instead bought back stock with…

Right. Buybacks don't raise the shareprice relative to doing nothing, but they do raise the shareprice relative to paying dividends. Maybe it would be better to describe this as "dividends lower the share price".

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

#284

Post by kgwgk »

gbear605 wrote: post #282
OscarCunningham wrote: post #202

Earlier quoted context omitted.

> In reality, executives and directors could very well be authorizing stock buy-backs to keep share prices up so their stock options remain in-the-money for as long as possible. If that's the case, the buybacks are meant more for the benefit of executives and directors than for the benefit of the business or its shareholders. This plan shouldn't work because buybacks shouldn't cause stocks to rise unless the market t…

That’s only true as long as the buybacks are done using a cash pile. There are a lot of companies that, instead of trying to grow, give dividends to their investors (think utility companies). Their stock prices tend to be pretty stable, since their inherent worths don’t change much. Suppose there is a 100 million dollar power company that instead of giving dividends of 1% per year, they instead bought back stock with…

> We would expect the stock valuation to go up by about 1%

Yes, but not overnight. It will take one year or one quarter or whatever would by the period required for the price to recover if it had distributed the 1% dividend. (You said an annual dividend of 1% but that seems too low for a stable business!)

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

#286

Post by hrez »

mpalczewski wrote: post #214
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.

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.

Executive stock based compensation also dilutes shares which buybacks balance back. Shareholders may get way less in value from buybacks than execs.

on topic https://www.ft.com/content/0f863da4-0b6e-11ea-b2d6-9bf4d1957...

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

#287

Post by bluecalm »

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…

Even if we accept that companies returning money to shareholders means that they can't find good use for the capital doesn't mean the government will. If anything maybe the shareholders themselves can find better use for the money. After all they have wider avenue of possible investments (things outside of the scope of what the company is doing). There is also the whole fairness side of things: even if it's a bit less efficient for shareholders to have the money or even if they want to spend it for consumption doesn't mean the government should take it.

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

#288

Post by airstrike »

mcguire wrote: post #280
derefr wrote: post #147

Earlier quoted context omitted.

Five facts, and one generally-held assumption: Fact 1. Companies’ brains (for this level of executive decision-making) are their boards of directors. Fact 2. Boards of directors are made up of people elected by shareholders. Fact 3. “Making the shareholders money” (either through dividends or equity) is the most obvious “platform” on which to get elected to this position; and “not making the shareholders money” is us…

Pssst! Hey, Bud, there's a problem... Fact 2 is true-ish, sort-of, but largely irrelevant. Except in extreme cases that tend to make headlines, shareholders vote for the people management selects. And when was Fact 4 last seen in public?

October 15, 2019

https://www.cnbc.com/2019/10/15/de-shaw-gives-searing-indict...

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

#289

Post by airstrike »

mattmanser wrote: post #188
derefr wrote: post #147

Earlier quoted context omitted.

Five facts, and one generally-held assumption: Fact 1. Companies’ brains (for this level of executive decision-making) are their boards of directors. Fact 2. Boards of directors are made up of people elected by shareholders. Fact 3. “Making the shareholders money” (either through dividends or equity) is the most obvious “platform” on which to get elected to this position; and “not making the shareholders money” is us…

These are obviously not "facts" and companies obviously do not operate in that way. Really obviously. Just observe any company. I appreciate you might have a real hard-on for capitalism, but making up stuff like you just did doesn't help. Companies are cess-pools of politics, incomplete information, petty rivalries, and disparate power. Most shareholders are clueless, poorly informed or spreadbetting. Given this is a…

> Just observe any company.

That's not a valid counter to the parent's well-formed post. Speaking for myself, I have observed countless companies and those facts continue to hold true.

I appreciate you might have a real hard-on for anti-capitalism, but making up stuff like you just did doesn't help.

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

#290

Post by dlp211 »

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.

Or we could tax excess capital and reinvest it in ourselves as a country upgrading our infrastructure, educational attainment, health, and the common wealth.
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