Buybacks are mostly evil, and used to make their managers/c level wealthy:
S&P 500 Buybacks Now Outpace All R&D Spending in the US
351–360 of 402 posts
Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US
#352I've said this before and I'll say it again: in the absence of a tight coupling between profit and payouts (either buybacks or dividends) the value of a stock becomes detached from the value of the company, and approaches pure opinion. When profitable companies don't pay out dividends or buy back stock, their stock price growth has nothing to peg it to the actual profit of the company. Likewise, when unprofitable companies pay dividends and buy back stock, their stock price begins to directly contradict their (lack of) growth. In short, with tricks like this available, the stock market is a bad way of measuring how the economy is doing.
It's not clear from the article whether or not the companies borrowing money are the same companies buying back their own stock. But if they are, then it's clear that the economy (as indicated by real value being produced) has already crashed, and this is just a hack to delay admitting this, so that execs and the financial sector can continue to profit. It's become clear that the government will bail out companies when this strategy inevitably fails, so it's average people who will pay the cost.
To be honest, I am a bit surprised this hasn't happened sooner. It's a fairly obvious hack: if you fail to produce value, just borrow money and prop up your stock price. Perhaps that's why: maybe it's too obvious--the people who make their money by finding new and creative ways to move money around have to at least create the appearance of investing in real value.
Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US
#353Earlier quoted context omitted.
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…
> Corporation buys back $100 of shares from 1 shareholder. No taxes were due there as there were no capital gains for shareholder 1. Shareholder 2 now owns 100% of the corporation, so their investment is now, all other thing equal, worth $200. Maybe I don't understand how stock works, but wouldn't shareholder 2 still own only 50%, with the corporation still owning 50% of itself?
No, the corporation retires the shares after the buyback. Total outstanding shares decrease. All remaining shareholders get a larger percent ownership of the corporation
Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US
#354Earlier quoted context omitted.
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.
I’d rather invest in just that company, one that can continue reinvesting profits in itself at attractive returns year in and out. I can sit back and let compounding work it’s magic ( although at some point in my life I will switch from a net producer to a net consumer and opt for cash ). In cases where a company does not need all the cash it generates to continue its growth or does not have growth prospects ( not necessarily a bad thing), then I’d rather have cash to invest more productively elsewhere.
Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US
#355I've said this before and I'll say it again: in the absence of a tight coupling between profit and payouts (either buybacks or dividends) the value of a stock becomes detached from the value of the company, and approaches pure opinion. When profitable companies don't pay out dividends or buy back stock, their stock price growth has nothing to peg it to the actual profit of the company. Likewise, when unprofitable com…
“in the absence of a tight coupling between profit and payouts (either buybacks or dividends) the value of a stock becomes detached from the value of the company, and approaches pure opinion.”
I think I can agree with that. Whenever I hear someone say that a stock is overvalued because it’s market cap is 15 or 20 times sales, I always ask so what? Who says 15 to 20 is too high. Why not 100 or some arbitrary number? I mean, the stock has no dividend and they never have done buybacks and you aren’t going to get a piece of their sales in the form of a paycheck! Why should you care what multiple the market cap is over sales??!!
It’s all opinion. You are just valuing it based on what other analysts think is the “right” multiple.
Sometimes I wish the stock market worked like a blind bidding auction. You can’t see the current price nor the other bids. And nobody is allowed to publish any articles expressing their opinions on any stock.
Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US
#356Earlier 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 :)
My Vanguard account is showing 11.2% yearly return over the past 10 years. You need to take some risk.
Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US
#357Earlier 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.
But "buying back stock" only temporarily creates value for the shareholder. If they don't immediately sell the stock, the price will return to what it was before they buyback, because no underling value in the company has increased (especially when dividends are never payed out, like most high tech companies that are always in the "growing" phase : looking at you FB, Goog etc).
Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US
#358Read 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…
Aren't these already taxed? If the company is buying that implies that someone is selling and would be taxed on that sale.
Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US
#359Earlier 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.
> 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. That's assuming the value of the cash is the same in the hands of the corporation as the shareholders. But if the corporation has nothing it needs the money for internally then the cash is nothing but a liability that it has to waste resources trying t…
But what if there is no ROI, like high tech companies that pay no dividends?!
Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US
#360Earlier quoted context omitted.
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 — cumulativel…
Thank you for sharing this link. Not sure what to think about it tho...
"In essence, Bain would value the special, riskier shares at pennies on the dollar. In one deal, employees invested about $23,000 in their IRAs. When the takeover target went public, those shares were worth about $14 million, and were worth about $23 million they finally sold the shares. That’s a 100,000% return."
Meaning, someone was risking their $23k in IRA. And looks like that investment opportunity was given to regular employees as well, meaning it wasn't a rigged up illegal trade based on some kind of insider information?