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No science, no startups: The innovation engine we're switching off

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Re: No science, no startups: The innovation engine we're switching off

#221

Post by triceratops »

RandomLensman wrote: post #200
triceratops wrote: post #187

Earlier quoted context omitted.

Because if I don't intend to sell right now, and the company is otherwise a healthy, going concern that can pay sustainable dividends, the actual share price is irrelevant to me. If anything, given my belief in the company, a lower share price is better. I can buy more shares!

If you ever want to sell, getting in the limit nothing for the shares might matter, no? There are other things: for example, share based M&A or compensation or other investors with different preferences - no relevance or interaction?

> If you ever want to sell

I already said that buybacks benefit sellers.

> share based M&A or compensation

All fair points. Share-based M&A can be good for investors. But if the stock price is going up because the company spent money on buybacks, then the company could also just pay cash for M&A and skip the buybacks.

Higher compensation is good for employees who get paid stock and for upper management, who are nearly always paid largely in stock. There's an argument that's good for shareholders because of better retention. But if that were the case, why not just pay employees more cash?

Re: No science, no startups: The innovation engine we're switching off

#222

Post by triceratops »

nradov wrote: post #220
triceratops wrote: post #185

Earlier quoted context omitted.

> delivering to themselves the tax-advantaged equivalent of a 4% dividend? Long-term gains and qualified dividends (shares held longer than 60 days) are taxed at the same rate. What's the tax advantage here?

The tax advantage of stock buybacks is that investors aren't forced to immediately realize gains. They have the freedom to time sales to minimize overall income tax liability, for example by harvesting losses in other investments in a future year.

This is true. I'd still file tax-loss harvesting under "advanced maneuvers employed by high net worth people".

At a societal level, and I understand this is a completely different point, I also question whether it's prudent to allow tax dodging this way. We already tax labor heavily and at the same time we incentivize companies to improve productivity (read: use less labor). How do we pay for society without taxing some of the productivity (read: profits) or taxing labor even more? You can only cut so many services.

Re: No science, no startups: The innovation engine we're switching off

#223

Post by nradov »

nyeah wrote: post #218
nradov wrote: post #217

Earlier quoted context omitted.

Well there you go again, lying and making things up. No stock buyback has ever caused a doubling in share prices. Going through intermediate prices is irrelevant.

Yes, it was a made-up example. I feel that was obvious. If your point [about share price jumping suddenly] was irrelevant, then maybe you shouldn't have mentioned it. How is this my problem? I see that you edited your previous comment before replying. Very clever. Now (12:03 Pacific) you have a company worth $1000 trading on a major stock exchange. Ok. Maybe you can make a spreadsheet similar to what I described in w…

[flagged]

Re: No science, no startups: The innovation engine we're switching off

#224

Post by nyeah »

badpun wrote: post #203
Tuna-Fish wrote: post #156

Earlier quoted context omitted.

4. Those who intend to re-invest all returns in to the stock, who avoid a taxable event when their ownership of the company goes up without having to first pay tax for the dividend. A stock buyback rewards all stockholders equally . Those who sell, get their reward in cash. Those who do not sell, get their reward in the proportion of their ownership of the company going up.

> Those who do not sell, get their reward in the proportion of their ownership of the company going up. This is incorrect. If the company buys back say $100m worth of its stock, it's true that the individual shares remaining represent a larger fraction of the company, BUT the company itself is worth $100m less after the transaction (because it has spent that $100m on purchase of something that can't be added to the b…

That's only true if the company pays book value for the shares.

I'm upvoting because you're advancing the discussion for sure.

Re: No science, no startups: The innovation engine we're switching off

#225

Post by m463 »

terminalshort wrote: post #3

> In the 20th century, U.S. companies put their excess profits into corporate research labs. Basic research in the U.S. was done in at Dupont, Bell Labs, IBM, AT&T, Xerox, Kodak, GE, et al. This changed in 1982, when the Securities and Exchange Commission ruled that it was legal for companies to buy their own stock (reducing the number of shares available to the public and inflating their stock price.) Very quickly B…

> I'm not seeing how you get from share buybacks to a shift in priorities in corporate research

seems to me investing in your own company:

before: use funds actively for research and development

after: use funds passively to "invest" in your company by buying stock

seems like that old parable where someone buries their investment.

EDIT: parable of the talents

https://en.wikipedia.org/wiki/Parable_of_the_Talents

Re: No science, no startups: The innovation engine we're switching off

#226

Post by RandomLensman »

triceratops wrote: post #221
RandomLensman wrote: post #200

Earlier quoted context omitted.

If you ever want to sell, getting in the limit nothing for the shares might matter, no? There are other things: for example, share based M&A or compensation or other investors with different preferences - no relevance or interaction?

> If you ever want to sell I already said that buybacks benefit sellers. > share based M&A or compensation All fair points. Share-based M&A can be good for investors. But if the stock price is going up because the company spent money on buybacks, then the company could also just pay cash for M&A and skip the buybacks. Higher compensation is good for employees who get paid stock and for upper management, who are nearl…

Are there many investors that are never sellers (that is different from selling soon-ish)?

Paying cash could be quite different than paying in shares for M&A.

If owning/using shares makes no difference to cash (whether to employees or in M&A situations), why not do buybacks then if there is no difference between cash and shares anyway?

Re: No science, no startups: The innovation engine we're switching off

#227

Post by cadamsdotcom »

It feels like in the past 20-ish years, maybe longer, game-changing innovations have become rarer, making science lower ROI.

If that’s true (maybe it’s not? all I have is vibes!), if it is indeed true, and science is becoming less able to convert into invention- it stands to reason that at some point it becomes rational for a country to direct resources elsewhere. Political will becomes strained, and politicians decide it’ll be popular to defund and discourage science.

And maybe that is how the US got here.

Re: No science, no startups: The innovation engine we're switching off

#228

Post by 7thaccount »

dexwiz wrote: post #15
7thaccount wrote: post #13

Earlier quoted context omitted.

On one hand, sure. They're able to make an informed decision to maximize return to shareholders. On the other hand, a ton of amazing inventions came out of that system which created entire industries that went on to turbocharge the economy and create millions of jobs. I can see how someone may feel that a company being able to inflate it's stock price more is less useful to humanity and not worth the trade. There may…

Science takes years to decades to see a return. Much too long for the quarterly returns folks.

I wonder if Milton Friedman regrets going out and popularizing that and saying the board has a duty to maximize shareholder profit and all that.

Re: No science, no startups: The innovation engine we're switching off

#229

Post by 7thaccount »

ModernMech wrote: post #120
7thaccount wrote: post #8

Earlier quoted context omitted.

Nothing against research universities as good stuff does occur there, but it just seems like it was such a a huge loss seeing those corporate labs disappear. I think it helps to have scientists and engineers closer to the problem and who don't have to spend a huge amount of their time writing grants and training grad students.

> it was such a a huge loss seeing those corporate labs disappear. A loss for whom? Society? Of course, and that's exactly why they don't happen anymore -- because while they were a boon for society they were a terrible bet for the company. And when a company has a choice between doing good for their bottom line or doing good for society, 100% of the time they choose their bottom line. I mean, look at the legacy of X…

The corps won't stomach it anymore at the scale they formerly did, but at one point they did. It could happen again some day...just a lot would have to change.

Parc just didn't capitalize on what they had. I know the Alto was expensive, but still seems like a huge shame.

Re: No science, no startups: The innovation engine we're switching off

#230

Post by badpun »

nyeah wrote: post #224
badpun wrote: post #203

Earlier quoted context omitted.

> Those who do not sell, get their reward in the proportion of their ownership of the company going up. This is incorrect. If the company buys back say $100m worth of its stock, it's true that the individual shares remaining represent a larger fraction of the company, BUT the company itself is worth $100m less after the transaction (because it has spent that $100m on purchase of something that can't be added to the b…

That's only true if the company pays book value for the shares. I'm upvoting because you're advancing the discussion for sure.

You're right, I missed that! But, essentially this makes the case for buybacks even worse - paying over book value for shares means that the company is reducing its book value via the buyback. So, it's worth less after the buyback.
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