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

#291

Post by CharlesColeman » Wed, Dec 11, 2019, 9:32 PM UTC

bluecalm wrote: post #279

CharlesColeman wrote: post #269

Earlier quoted context omitted.

> It makes sense to do it this way as well as otherwise you would be losing money to taxes just because the price fluctuates I'm unsure how you're reaching this conclusion. I said nothing about eliminating capital gains and moving to some kind of system where investors are taxed on yearly stock price fluctuations. All I proposed was to forbid companies from purchasing their own stock for the purpose of manipulating i…

The point is that purchasing their own stock is not for the purpose of manipulating its price. The price increase is a natural consequence of there being less outstanding shares. Less outstanding share = one share is worth more. >>Dividends exist and have a long history as being the the way of returning cash to shareholders. Forcing their use for that purpose would make it easier to make and enforce policies on that…

> The point is that purchasing their own stock is not for the purpose of manipulating its price. The price increase is a natural consequence of there being less outstanding shares. Less outstanding share = one share is worth more.

You're literally describing manipulating price by manipulating supply. If companies aren't buying back their stock to make its price go up, why are they buying it? You're contradicting yourself.

> Buybacks has many advantages though. The biggest one is that if you want to reinvest dividends into stock you would have to pay taxes which creates a situation where you are liable for taxes even if you didn't make any money (if the price fluctuates). Buyback is like automatically reinvested dividend. I don't think it should be taxable for the reasons outlined above.

I understand that stock buybacks have advantages in certain situations for some people. I'm suggesting those advantages be eliminated.

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

#292

Post by airstrike » Wed, Dec 11, 2019, 9:33 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…

> In other cases, they just seem like financial engineering employed by CEOs and other interested parties to game their personal job performance metrics.

They may seem like that from the outside looking in, but you'd be hard press to find a finance professional who agrees with that assessment. Just imagine how many incorrect notions laymen have about software and realize that the same is true in finance and any other sufficiently advanced field of knowledge.

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

#293

Post by cjlars » Wed, Dec 11, 2019, 9:54 PM UTC

drelihan wrote: post #141

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.

Buybacks are effectively taxed at the same rate as dividends, at least qualified dividends, just timing differs: Simple case with a corporation worth $200 with two equal shareholders, who each paid $100 for their half of the company and are in 20% capital gains tax bracket, ignoring net investment tax of 3.8%: Dividends: Corporation pays $100 in qualified dividends, $50 to each shareholder. Each shareholder pays thei…

Option three would be to not distribute cash through dividends or buy backs and reinvest directly in the business. In that case the net result and tax treatment is about the same as buying back shares. Trying to treat buy backs as a special case would just result in a defacto incentivization of conglomerates.

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

#294

Post by mcguire » Wed, Dec 11, 2019, 9:59 PM UTC

airstrike wrote: post #288

mcguire wrote: post #280

Earlier quoted context omitted.

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...

"Emerson’s stock price, which has already responded to stories of D.E. Shaw’s potential activism, was up slightly Tuesday."

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

#295

Post by take_a_breath » Wed, Dec 11, 2019, 10:01 PM UTC

crazygringo wrote: post #155

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?

By definition not the rich, since retirement accounts are capped by law to relatively low yearly contributions. Sure the ultra-wealthy can have their retirement accounts too (if they even bother), but they can't be any larger than anyone else's. Just a tiny tiny tiny sliver for them, really.

Unless there might be loopholes in those annual caps that the wealthy use to their tax advantage. Found one:

==The GAO report shows that the top 1% have saved $1 trillion in their IRAs, 22% of the total.==

https://www.marketwatch.com/story/how-to-shelter-hundreds-of...

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

#296

Post by take_a_breath » Wed, Dec 11, 2019, 10:05 PM UTC

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…

There are lots of IRA accounts with far more money in them. We have the data (from 2011) which shows it.

==As of 2011, 314 multi-millionaires had more than $25 million saved in their IRA, with average holdings of $258 million, the GAO reported. About 9,000 taxpayers had at least $5 million in their IRA, with average holdings of $16 million.==

==All told, 630,000 millionaires — about 1% of all IRA savers — cumulatively had more than $1 trillion in IRA accounts, accounting for 22% of all IRA assets.

Meanwhile, the other 99% — the 42 million taxpayers whose IRAs held less than $1 million — had average savings of just under $100,000.==

https://www.marketwatch.com/story/how-to-shelter-hundreds-of...

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

#297

Post by rlucas » Wed, Dec 11, 2019, 10:05 PM UTC

derefr wrote: post #147

code_sloth wrote: post #122

Earlier quoted context omitted.

> 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_ doesn't make any sense. Companies don't think. They're legal entities that are controlled by a small group of people. This group of people can decide that they would prefer to do share buybacks to meet their own performance targets.

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…

Fact 4 is largely incorrect. Boards with adversarial relationships with large blocs of shareholders generally adopt provisions like staggered board terms (like the US Senate).

Fact 3 is also a fairly fanciful interpretation. Large public corporate board membership can be lucrative, but is in practice not competed for by a talent pool the way that say, a CTO or VP of Sales or CFO role would be. New board members are almost always vetted and nominated by the existing board. Hence new board members are nearly always either 1. in-group members (a cynic would say "cronies") with satisficing business acumen from the same social/business milieu as the incumbents, or in the exceptional case, 2. high visibility outsiders (a cynic would say "window-dressing") from other endeavors, such as former politicians, admirals and generals, etc. A new movement adds a third possible vector in, namely being a highly qualified business person with a politically / optically desirable diversity characteristic. But once that candidate comes in, they quickly will learn that the means to stay in the Inner Ring and gain lucrative additional such opportunities is to toe the line...

I'm sympathetic to your idea of emergent behaviors of the group arising from knowable axioms about the individuals and their motivation but I think you've got some incorrect axioms about the selection and incentives of those individuals.

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

#298

Post by take_a_breath » Wed, Dec 11, 2019, 10:06 PM UTC

wutbrodo wrote: post #199

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?

Since the ultra-wealthy are by definition a small portion of the population, and retirement contributions are capped at a low annual rate, it does in fact make the point that the parent commenter is trying to.

==All told, 630,000 millionaires — about 1% of all IRA savers — cumulatively had more than $1 trillion in IRA accounts, accounting for 22% of all IRA assets.==

https://www.marketwatch.com/story/how-to-shelter-hundreds-of...

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

#299

Post by natalyarostova » Wed, Dec 11, 2019, 10:08 PM UTC

loourr wrote: post #58

This is robbery by the management class, and who can blame them. If I can take on debt at a corporate level and personally enrich myself, by increasing the value of the stock through buybacks and then selling it, why wouldn't I? This is all made a whole lot worse by stock option packages that give managers equity at major discounts. I think we'll look back at this as the largest heists in history. Should serve as a g…

It's only a heist if no one else is as smart as you. If anyone is as smart as you, they would notice that stock buybacks are correlated with a future decrease in price, as the increasing price of the stock is due to manipulation (i.e. the current demand for the stock is not a function of an increase in expected future values, nor does it signal a change in population level discount factors).

This is just your average outrage by people who don't know how to properly reason about financial markets.

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

#300

Post by rlucas » Wed, Dec 11, 2019, 10:10 PM UTC

Negitivefrags wrote: post #263

jonathankoren wrote: post #103

Earlier quoted context omitted.

> 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 very strange explaination. As stated it sounds like stock buybacks are some sort of altruistic endeavor resulting from some kind of collective shrug. This couldn’t be further from truth. Buybacks are the result of executive incenti…

I highly doubt that compensation for executives is based on the value of a single share, not taking into account outstanding shares. That’s a blindly obvious loophole. Their compensation would be based on market cap, which you can’t increase by doing a buyback.

That "blindingly obvious loophole" is basically the standard.

These compensation deals are very often based on earnings per share or value per share. And you can increase it.

The link below is from the Conference Board, which is about as rock-ribbed big business friendly capital establishment types as they come. Even they caution about executive trickery here.

https://www.conference-board.org/blog/postdetail.cfm?post=68...