> If it’s gone forever, then… why? They just bought something and burnt it? Isnt that like a waste of resources?
You might have an easier time with some numbers.
A corporation called Hluska trades at a market cap of $100. Hluska has issued 100 shares. Now, let’s say that Hluska burns ten shares and the market cap stays the same. Now it trades at a market cap of $100 but it has 90 shares outstanding.
Stock holders will only lose stock if they sell stock. In that case, they will be taxed at a capital gains rate which is generally lower than the tax rate on income from dividends. So it’s a way to return capital to shareholders who want out in a tax effective way.
If it doesn’t work, it’s a waste of resources. Let’s go back to our example, that idiot Hluska was trading at $100 with 100 shares outstanding, burned 10 and now trades at a market cap of $80. In that case, yeah, it’s a waste of resources because each individual stock is worth less money post burn. But that doesn’t really happen very often. A better capitalized company than Hluska with its soaring $100 market cap should be able to withstand a burn event without crushing market cap by 20%.