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

#71

Post by rbavocadotree » Wed, Dec 11, 2019, 3:36 PM UTC

AQR published a paper on share buybacks last year [0] with the opening sentence "People seem to forget some of the very basic lessons of financial economics when it comes to share repurchases".

One of the big things missed by all the articles covering share repurchases, is that they are increasing at a rate similar to company market cap. That shouldn't be too surprising. The real story is why is R&D not keeping up?

It's worth a read for a more nuanced view.

[0] https://pdfs.semanticscholar.org/dcc3/e0d7288395c2891f1fee19...

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

#72

Post by ailideex » Wed, Dec 11, 2019, 3:37 PM UTC

mountainofdeath wrote: post #62

mrfusion wrote: post #44

Earlier quoted context omitted.

I’m confused. Companies are using profits for the buy backs. Corporate profits are already taxed.

Not profits but debt. With the ultra-low interest rates of the last ten years, companies could finance bonds at rates just above inflation. However, instead of using those funds to grow the business (e.g. R&D), they simple bought back shares, increasing the price of the stock.

Can you cite? What companies are using debt to finance repurchases? Also the person you responded to probably meant that they profit in a technical bookkeeping sense not. You can still have profit while having debt and profit will be taxed in a certain way.

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

#73

Post by [deleted] » Wed, Dec 11, 2019, 3:37 PM UTC

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…

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

#74

Post by [deleted] » Wed, Dec 11, 2019, 3:39 PM UTC

cs702 wrote: post #12

Large US corporations have been buying back their own stock in record amounts, while investors have been cashing out of US stocks at a record pace , recent data shows: https://www.msn.com/en-us/money/markets/investors-bail-on-st... -- money is not being plowed back into IPOs, secondary offerings, etc. According to orthodox economic theory , large US corporations must be buying back stock with earned profits and new d…

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

#75

Post by 1-6 » Wed, Dec 11, 2019, 3:39 PM UTC

I've watched somewhere that these buybacks is to keep the stock prices afloat lest their employee stock options get hammered and they lose employees. Tech workers are operating on fumes.

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

#76

Post by CyanLite2 » Wed, Dec 11, 2019, 3:39 PM UTC

mrfusion wrote: post #46

I’m not getting this headline. Buy backs are something done with profit. So replace the headline with “s&p 500 Profits now outpace all R&D spending in the US”.

Buybacks are happening without profit. Companies are borrowing money to conduct buybacks.

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

#77

Post by phendrenad2 » Wed, Dec 11, 2019, 3:41 PM UTC

There's two ways to look at everything. Buybacks can be seen as companies giving money back to the shareholders. Or if you decouple the company from it's stock, you'll see that buybacks are an investment in the company's own future, since they believe that their own stock is at a discount now, and they'll make more selling it later.

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

#78

Post by [deleted] » Wed, Dec 11, 2019, 3:41 PM UTC

coldcode wrote: post #22

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…

Companies (often ones with business both in and outside the US) generally borrow money to pay for buybacks (Apple as an example). So corporate debt goes up, paid out of future earnings if they exist, to keep the stock price up and keep shareholders happy. But it is not making business value which ultimately is what business exists for and should reflect in the stock price. So the price is propped up for some time per…

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

#79

Post by bob_theslob646 » Wed, Dec 11, 2019, 3:41 PM UTC

rbavocadotree wrote: post #71

AQR published a paper on share buybacks last year [0] with the opening sentence "People seem to forget some of the very basic lessons of financial economics when it comes to share repurchases". One of the big things missed by all the articles covering share repurchases, is that they are increasing at a rate similar to company market cap. That shouldn't be too surprising. The real story is why is R&D not keeping up? I…

Thank you for sharing this.

There's a great thread on Twitter about share buybacks criticisms particularly by Cliff Asness who is the founder of AQR.

https://twitter.com/CliffordAsness/status/118827733385941811...

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

#80

Post by mrep » Wed, Dec 11, 2019, 3:45 PM UTC

tw04 wrote: post #67

crazygringo wrote: post #55

Earlier 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…

The point is both the companies in question and the ultra-wealthy that are the beneficiaries of the vast majority of these buybacks AREN'T paying taxes, so it's another way for the government to at least attempt to capture the $$ that should already be going into the treasury instead of offshore accounts/subsidiaries/whatever double dutch triple lux tax evasion scheme of the month they're using.

How are they not paying taxes? The people selling their stock to the company in the buyback have to pay taxes on any gains and the people holding onto the stock long term will eventually have to pay taxes on any gains when they finally do sell (they're not going to hold onto a stock until the heat death of the universe so they are going to realize their gains and pay taxes on them at some point).