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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

#341

Post by Mikeb85 »

papito wrote: post #229
Mikeb85 wrote: post #117

Earlier quoted context omitted.

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

Then why are companies buying back at record highs? Surely they are not dumber than Joe the Investor on Main Street.

Low interest rates as well as high cash levels. The whole point of markets is to raise cash then pay it off. Not to tank the price and rip off investors.

Also, buying back shares keeps stock prices high, makes each outstanding share worth more (less dilution), so more value for the remaining owners.

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

#342

Post by CuriouslyC »

xadhominemx wrote: post #304
CuriouslyC wrote: post #272

Earlier quoted context omitted.

Or they could buy a different stock and pay nothing.

No, you have to pay for each individual stock

I true for large or institutional investors, but not with 401ks and IRAs though. Also, for large institutional investors, they can time sales to use capital losses to avoid tax burden.

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

#343

Post by formercoder »

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 should we get all excited about giving the government more money to spend? They are terrible at spending it effectively.

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

#344

Post by jdminhbg »

ahakki wrote: post #326
triceratops wrote: post #216

Earlier quoted context omitted.

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...

> 4% real rate of return (pretty modest) Citation needed. My savings account has been paying 0.1% for about a decade now. They just introduced a new 0.0% rate on deposits over CHF 250'000 :)

US retirement accounts are usually invested in stocks and bonds, not savings accounts.

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

#345

Post by newfangle »

CuriouslyC wrote: post #342
xadhominemx wrote: post #304

Earlier quoted context omitted.

No, you have to pay for each individual stock

I true for large or institutional investors, but not with 401ks and IRAs though. Also, for large institutional investors, they can time sales to use capital losses to avoid tax burden.

Ok so your original response to the comment is factually incorrect. Unless you think deducting capital losses and retirement accounts should be gotten rid of.

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

#346

Post by aliston »

walshemj wrote: post #308
jdsully wrote: post #174

Earlier quoted context omitted.

No the shareholders own the company so they “own” the cash either way. Buybacks and dividends return control of the cash back to shareholders so they can allocate it elsewhere.

Not exactly a 10% buy back is not 100% guaranteed the same return as a 10% dividend - and this Ignores the time value of money.

Theoretically an x billion dollar dividend results in the exact same outcome for a shareholder as an x billion dollar stock buy back. Not sure the time value of money factors in.

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

#347

Post by mensetmanusman »

jvanderbot wrote: post #19
nabla9 wrote: post #3

> drowning out real investment. The conclusion that buybacks are alternative for real investments is wrong. The aggregate change between R&D and capex versus buybacks and dividends is not just some arbitrary decision. ROI from R&D and investments is slowing down for various reasons. Instead of investing more without reason to do so, companies should give profits to owners or pay off excess debt. There is wrong and ri…

OK. You're probably right. I still hate it. There's not a viable explanation that doesn't make it seem shortsighted and greedy (personally, and possibly due to HN filter). Why is R&D not a good investment suddenly? Shortage of tech workers (blah blah) ...?

It is still a good investment, but the timelines are getting longer as the challenges get larger. This is happening simultaneously during a time when attention spans and patience are decreasing.

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

#348

Post by laurencerowe »

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.

While the tax rates are the same the result is different since a shareholder can chose when to realize the gain. If you model dividend reinvestment vs share buy backs this taxation deferral is quite significant for the shareholder due to compounding effects. A simplistic illustration:

Tax rate on cap gains and dividends is 20%.

Inflation is zero.

Company earns 10% of its market cap yearly in profits.

Company's market cap is static over time.

Scenario A: returns profits as share buy backs.

Scenario B: returns profits as dividends on which the shareholder pays tax and reinvests the rest in company stock.

At the end of the scenario, sell all stock paying capital gains tax due (nothing to pay on scenario B since stock price has not changed.)

Even though dividends and capital gains are taxed at the same rate, scenario A beats scenario B by 10% over 10 years and 45% over 30 years.

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

#349

Post by thebradbain »

ChrisLomont wrote: post #316
thebradbain wrote: post #277

Earlier quoted context omitted.

They paid $1+ Billion local, state, and international taxes. They paid $0 in federal taxes. Definitely worth noting, imo. https://www.google.com/amp/s/www.forbes.com/sites/stephanied...

Nothing in your link shows Amazon paying zero in federal income taxes, except the statement by the author. I trust SEC filings more than this article without supporting evidence. From the SEC filing, on page 22, they talk about US income taxes, and state over the three years covered that they paid out billions with exact amounts in the SEC filing. Care to provide a well sourced link with the zero federal income taxes…

Sure, and I would point my source to be the very SEC filings you linked. Head to page 62. Look at “US Federal” under “Current Taxes” — you will see “(129)”. What the “()” means is that they believe the government owes them 129 Million in tax REFUND.

If you count deferred taxes they do owe money, but that’s money that hasn’t left their pockets in that tax year. Hence 0 federal taxes for tax year 2018. That is a hard fact.

Snopes gives a further summary of how to calculate it, albeit for the tax year 2017, though equally applicable as it’s the same format as the SEC filing you linked.

https://www.snopes.com/fact-check/amazon-federal-taxes-2017/

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

#350

Post by triceratops »

ahakki wrote: post #326
triceratops wrote: post #216

Earlier quoted context omitted.

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...

> 4% real rate of return (pretty modest) Citation needed. My savings account has been paying 0.1% for about a decade now. They just introduced a new 0.0% rate on deposits over CHF 250'000 :)

That's the wrong type of investment for a retirement account with a 50-year horizon. An account like that is (should) be invested in a diversified portfolio of stocks and bonds, such as one composed of low-cost index funds.
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