8 ms·

I've asked numerous friends who work in finance and do graduate studies in econ. for their perspective on buybacks, and they truly don't understand why the lay

I've asked numerous friends who work in finance and do graduate studies in econ. for their perspective on buybacks, and they truly don't understand why the lay press has become so obsessed with the maneuver as a moral evil. Yeah, it can temporarily juice a stock's price, but other major players in the market and board members at the corporation in question aren't as stupid about short term gain as we've been led to believe by these journalist jeremiads. If a company wants to unleash its pent up capital into more efficient allocations of the economy, i.e. the companies that will grow and invest in workers, and the sellers on the other end of the buyback want to trigger capital gains taxes, by all means let them do it. Let's not leave out that other side of the equation in a rational discussion.

RandomInteger4 8y ago
Because they're taking the tax savings from the irresponsible congressional actions and using that to enrich the wealthy rather than raising the pay of their workers by a non-trivial amount.
- tylerhou 8y ago
  A large number of people who work at, say Apple, the company which bought the most of their stock back, will see very non-trivial increases in effective compensation because of stock price rises.
  - ryandrake 8y ago
    Those increases are only non-trivial and meaningful to employees who have a non-trivial or meaningful amount of equity. In other words a very small percentage of employees.
    - tylerhou 8y ago
      Very small percentage? From a quick Google roughly 17-25% of Apple employees are engineers. Assuming all engineers get options, and that options are around 1/4 of an engineers compensation, and assuming that buybacks raised Apple's stock by 2% (I don't know how accurate that number is, but I'm just throwing it out there), each employee saw a 0.5% bonus per year assuming their options were issued before the buyback was decided. That's definitely non-negligible; it's around $1000/year for the average engineer. To be honest, I wouldn't be surprised if Apple also compensated some high-value non-engineers in stock. To find the actual number of people who benefit, you would have to include them, plus you would have to add in all the people who don't work at Apple but own Apple stock directly or indirectly (for example, while I don't work at Apple, I probably own some stock because of my participation in a mutual fund). I'm pretty certain that there are tens of thousands of people who see an increase in earnings because of Apple buybacks. The majority of them might be well-off since they are engineers or have the luxury of purchasing mutual funds, but I am hardly a millionaire or billionaire. EDIT: Did more Googling; Apple's stock jumped around 12% after announcing their buyback, so the bonus is around 3%. I would love a $6000 bonus/year for the next few years. [0] https://www.forbes.com/sites/chuckjones/2018/05/12/what-impact-could-apples-100-billion-stock-buyback-program-have-to-its-stock-price/#475d2b224c4c https://www.forbes.com/sites/chuckjones/2018/05/12/what-impa... [0]
      - ryandrake 8y ago
        Yes I guess it depends on your definition of non-trivial. $1000 is nice but it’s what, one or two weeks of rent? There are undoubtedly Apple (and other tech company) employees who watch their company’s stock price daily and receive a huge amount when it goes up 2% but not many of them.
        tylerhou 8y ago
        I updated my comment with some actual numbers; it's probably around $6000/year that your previous option grant was active, with favorable tax treatment because it can be taxed as long term capital gains if you're smart (and if you work at Apple, you probably are).
      - jldugger 8y ago
        > Assuming all engineers get options, and that options are around 1/4 of an engineers compensation, and assuming that buybacks raised Apple's stock by 2% General consensus I've seen on Blind is that FANG engineers take in about half their wages in stocks, but that includes multiple years of RSU refreshers and appreciation. But there's another way to think about it: buyback money isn't that much different than a dividend where people self-sort into who wants the money now versus later. Apple approved a 100B buyback program in May, and 4,915,138,000 shares outstanding. 20 bucks a share. Most offers I've seen on blind are around $100k of shares, so for AAPL at today's market close price that'd be $9300 dollars returned. Probably a bit more given they're at an all time high and the announcement was a few months prior. So the 12 percent figure kinda makes sense: 10 percent or so of the shares announced to be retired via, and a 2 percent jump is explainable via typical earnings. I doubt you'd find an engineer paid in RSUs who wanted to end buyback programs, but maybe one will pop up on HN and enlighten us.
      - int_19h 8y ago
        Compared to the "bonus" that high-level execs and other big shareholders get, it's not even peanuts. The issue here isn't the absolute number, it's who benefits relative to whom.
        8y ago
- h4b4n3r0 8y ago
  But worker pay won’t go up unless there’s a shortage of workers. This is orthogonal to worker pay.
  - toomuchtodo 8y ago
    Worker pay goes up with unionization and collective bargaining without needing a tight (usually temporary) labor market. Otherwise, we end up in a highly cyclical economic condition where employment conditions are tolerable during tight labor markets, but are downright terrible when there is a surplus of labor (note only recently, with unemployment near 3.9%, the lowest unemployment rate since 2000, that employers are considering usually undesirable candidates [criminal records, no college degree, etc]). Why is this undesirable? Simple. Lower and middle class workers drive the economy with their consumption. If they don't have stability, they don't spend. If they don't spend, the velocity of money through the economy decreases. You want workers to feel comfortable spending, and the only way to do that is by giving them stability along with a fair wage.
    - h4b4n3r0 8y ago
      Sure. I’m just saying worker pay issue is largely orthogonal to stock buybacks or tax cuts. It’s not like, all things being equal, the revenue would be spent on workers anyway.
      - toomuchtodo 8y ago
        > It’s not like, all things being equal, the revenue would be spent on workers anyway. It's possible it would be if it was more tax advantageous to pay workers then to pay out profits as buybacks through the most recent tax cuts. Clearly, taxes matter in corporate decision making, as large multinationals were keeping their cash offshore as long as possible, waiting for a tax holiday.
        h4b4n3r0 8y ago
        Hence the “all things being equal” qualification.
- hueving 8y ago
  It is not the job of companies to give excess capital to their workers. Where did you get that idea from? The rate workers are paid depends on the market for their skills and what retention the company wants. Worker pay will increase as the economy heats up and causes the labor pool to tighten.
  - RandomInteger4 8y ago
    I got that idea from being a decent human being that understands that workers will work more efficiently if they're not struggling in their personal lives; a struggle which can happen as a result of the market undervaluing humans with respect to the cost of living, and the workers lacking the bargaining power to demand what they need / deserve.
    - hndamien 8y ago
      Struggles can be pretty motivating, unfortunately.
      - lawnchair_larry 8y ago
        Only if they lead to progress. Treading water is demotivating.
      - felix_nagaand 8y ago
        For the 0.x% of people that breakout and exceed their demographics statistical expectations by orders of magnitude? Yeah, sure, that's true. What about for the rest of the population that doesn't? They're burnt out, disabled, addicted, ill, obese, unhappy, indebted, deluded, ignorant, and servile.
  - rorykoehler 8y ago
    In that case the government needs to tax corporations at a level that allows them provide the necessary services to workers that workers can't afford on their shitty incomes (ie healthcare, education, transport & housing etc). This isn't happening. Governments are handing out cash to companies at the expense of society and then the companies are double dipping again.
joshuaheard 8y ago
The media is against it because Trump. I don't see a difference between the corporation using the money or individuals. If the corporation thinks it doesn't need the money, it is probably better off in the hands of individual investors.
the_solenoid 8y ago
Because it is creating a huge short-term bubble of raised stock value when the companies have done nothing to actually increase their value. It's another cog in a huge crash for no reason whatsoever except to enrich a few people.
- deleted 8y ago
  [deleted]
- mercutio2 8y ago
  This is... not how bubbles work, as far as I know? The idealized enterprise value of a firm changes not one whit whether capital is returned to investors via a dividend or a stock buy back. There could conceivably be small differences in transaction costs between the two, but in practice, they’re very similar. Generally, the enterprise value of large amounts of cash for most firms is less-than-par, because investors fear management making vanity purchases that destroy value. So long term investors are much happier if capital is returned, and much happier if the method of return is via stock buy back.
  - hakfoo 8y ago
    Perhaps they should be keeping management on a tighter leash if the only likely outcomes they're capable of are "vanity purchases that destroy value" and buying back stock. If you've got mountains of free cash, there are a lot more exciting opportunities out there. You can afford to make higher-risk/higher-reward investments. You can buffer yourself from that next surprise recall/product failure/fulfillment problem. You can make sure you have a stake in anything that looks like it could someday be an existential threat.
    - mercutio2 8y ago
      Removing liquid assets from the balance sheet is the main way boards maintain a tight leash. It’s one step beneath firing an executive. There’s a reason (many) successful companies don’t just go off and become massive conglomerates attempting to pursue every idea any executive has. Areas where the board feels it has a competitive advantage, an investment opportunity, and enough management capacity to oversee the new investment are not, in fact, dime a dozen.
jldugger 8y ago
It's oddly coauthored by an economist. To quote his (likely self authored) wikipedia page: > Lazonick’s research has focused on the role of the innovative business enterprise in generating productivity and sharing these gains with employees as the foundation for stable and equitable economic growth.
- arduanika 8y ago
  Oddly, economists way more laureled than this guy crashed LTCM.
arduanika 8y ago
Agreed. Here's how I'd suggest reading this kind of article and thread: read it through while replacing the word "buyback" with "dividend", and see how 90% of the arguments fall away (or to be more charitable, become part of unrelated debates). A buyback is a roundabout way of paying a dividend, with the exact same effect (modulo capital gains tax, and I'm not talking about something like our b.s. subsidy of private equity services via the carried interest loophole, which is a creative way of paying a subsidy of dubious merit. What I mean here is, if companies were forced to pay dividends instead of buybacks, the superrich who can afford financial advisors would be organized enough to avoid paying, where as the middle class investor who is not playing with perfect strategy would pay a little more in capital gains, simply because it's hard to get the timing right unless you have billions of dollars at stake). For example, a sentiment like: "A history of buybacks has a positive long-term effect on stock prices, because investors like buybacks." becomes "A history of dividends has a positive long-term effect on stock prices, because investors like dividends." At that point, you're left with the somewhat valid 10% of the argument: trading in the open market causes short term price moves. Is there is any evidence that the SEC is insufficiently vigilant against, say, any executives who exercise options around the buybacks? If so, that does constitute manipulation by the executives and negligence by the regulators! If not, the SEC is doing its job. The opinion piece makes Rule 10b-18 out to be some kind of backroom deal, whereas this is the SEC doing its job: clarifying the law with enough precision that everyone is playing by the same rules. The SEC is charged with making & reassessing these rules. For example, if they thought that 25% of ADV makes too much noise and is bad for the market, they can tweak the parameters. Some reactions to other sentiments on this thread: > I wish more big stocks... paid regular dividends instead of buybacks Money is money. It doesn't matter whether you feel paid; it matters that a buyback does in fact pay you a dividend. > This is orthogonal to worker pay Bingo. This discussion is orthogonal to important questions of unequal opportunities or outcomes, or of redistribution, or the growth of intra-national inequality (while incidentally, things have become more equal inter-nation).
- Fomite 8y ago
  "Money is money. It doesn't matter whether you feel paid; it matters that a buyback does in fact pay you a dividend." The difference is a buyback only turns into money if you sell.
tboyd47 8y ago
It's really just one academic (William Lazonick) who seems to be really good at promoting his theory to the press. It seems like every time I see this topic on HN it's in connection with him. That said, I actually think his theory is a reasonable one and I'm more confused by comments on HN like this one. It sounds like you're saying essentially (1) your buddies disagree and they know better, and (2) buybacks may help the economy overall because they move cash from less efficient businesses into more efficient ones. Are you saying that the company buying its own shares is doing so because it's not very efficient? Shouldn't efficiency be reflected in the price of a business due to market forces? If the only place a company can find to put extra cash is buying out its own shares then that doesn't sound like a valuable business to me, and in a healthy market I would expect the price to go down, not up.
- lr4444lr 8y ago
  I'm saying that, as a lay person myself, I am happy to be convinced by a persuasive argument made in good faith by a credible source. My friends and acquaintances who are knowledgeable in this field talking to me privately have less at stake professionally than someone writing an op-ed for public consumption. Now, I am happy to change my point of view when I am unable or haven't the time to learn a topic more on depth even if I don't fully understand the details or resolutions of apparent superficial paradoxes. But when even basic explanations from an author defy logical sense - not a lack of domain knowledge - it raises a red flag for me. I'm not going to suspend critical thinking to entertain the fallacy of authority. I only cite the counterarguments I cite because even in their simplicity they demonstrate gaps in the case the author is making. I am more than happy to have someone better versed give a better account for why buybacks are worse than, say, sitting on cash or dividends.
  - tboyd47 8y ago
    Oops, I didn't mean to put you personally on the defensive there, I was honestly asking your thoughts. By the way, I managed to find a really good piece on Bloomberg that lays out both sides in a pretty objective way: https://www.bloomberg.com/view/articles/2018-05-08/apple-s-stock-buyback-isn-t-as-simple-as-warren-buffett-says https://www.bloomberg.com/view/articles/2018-05-08/apple-s-s... I'm no expert, but I feel like sitting on cash isn't as terrible a thing as people pretend. Cash encourages risk taking and innovation. The more cash you have, the bigger risks you can take. Nintendo keeps a lot of cash around and they're one of the most consistently innovative game companies. Sometimes their products flop (Wii U), but sometimes they're wild successes (Switch).
mishkinf 8y ago
It is a short term injection of value into stocks. This clearly can be abused. That money which could have been used to invest in, oh say hiring more Americans or paying employees better wages, or infrastructure, or anything with long-term value generation is rather diverted and put into stocks, which is a short term appreciation. The vast majority of stock is owned by the the very wealthy and many people at the bottom have next to zero or zero stock ownership. This obviously is a threat to a balanced society and the reduction of inequality. If a company wants to increase its stock value, why not invest the money it has into long-term growth investments rather than driving up the stocks? The decision to perform stock buy-backs could be an indication of the general pessimism that corporations have about the economy. If consumer debt is at an all time hight, how can we find more people to buy the products we are making? We tried giving people more debt than they could handle (mortgages) and that ended in spectacular disaster in 2008. So maybe the only thing corporations can do to increase value is to rely on buying back stocks! Makes a lot of money for some people..

RandomInteger4 8y ago

Because they're taking the tax savings from the irresponsible congressional actions and using that to enrich the wealthy rather than raising the pay of their workers by a non-trivial amount.

tylerhou 8y ago
A large number of people who work at, say Apple, the company which bought the most of their stock back, will see very non-trivial increases in effective compensation because of stock price rises.
- ryandrake 8y ago
  Those increases are only non-trivial and meaningful to employees who have a non-trivial or meaningful amount of equity. In other words a very small percentage of employees.
  - tylerhou 8y ago
    Very small percentage? From a quick Google roughly 17-25% of Apple employees are engineers. Assuming all engineers get options, and that options are around 1/4 of an engineers compensation, and assuming that buybacks raised Apple's stock by 2% (I don't know how accurate that number is, but I'm just throwing it out there), each employee saw a 0.5% bonus per year assuming their options were issued before the buyback was decided. That's definitely non-negligible; it's around $1000/year for the average engineer. To be honest, I wouldn't be surprised if Apple also compensated some high-value non-engineers in stock. To find the actual number of people who benefit, you would have to include them, plus you would have to add in all the people who don't work at Apple but own Apple stock directly or indirectly (for example, while I don't work at Apple, I probably own some stock because of my participation in a mutual fund). I'm pretty certain that there are tens of thousands of people who see an increase in earnings because of Apple buybacks. The majority of them might be well-off since they are engineers or have the luxury of purchasing mutual funds, but I am hardly a millionaire or billionaire. EDIT: Did more Googling; Apple's stock jumped around 12% after announcing their buyback, so the bonus is around 3%. I would love a $6000 bonus/year for the next few years. [0] https://www.forbes.com/sites/chuckjones/2018/05/12/what-impact-could-apples-100-billion-stock-buyback-program-have-to-its-stock-price/#475d2b224c4c https://www.forbes.com/sites/chuckjones/2018/05/12/what-impa... [0]
    - ryandrake 8y ago
      Yes I guess it depends on your definition of non-trivial. $1000 is nice but it’s what, one or two weeks of rent? There are undoubtedly Apple (and other tech company) employees who watch their company’s stock price daily and receive a huge amount when it goes up 2% but not many of them.
      - tylerhou 8y ago
        I updated my comment with some actual numbers; it's probably around $6000/year that your previous option grant was active, with favorable tax treatment because it can be taxed as long term capital gains if you're smart (and if you work at Apple, you probably are).
    - jldugger 8y ago
      > Assuming all engineers get options, and that options are around 1/4 of an engineers compensation, and assuming that buybacks raised Apple's stock by 2% General consensus I've seen on Blind is that FANG engineers take in about half their wages in stocks, but that includes multiple years of RSU refreshers and appreciation. But there's another way to think about it: buyback money isn't that much different than a dividend where people self-sort into who wants the money now versus later. Apple approved a 100B buyback program in May, and 4,915,138,000 shares outstanding. 20 bucks a share. Most offers I've seen on blind are around $100k of shares, so for AAPL at today's market close price that'd be $9300 dollars returned. Probably a bit more given they're at an all time high and the announcement was a few months prior. So the 12 percent figure kinda makes sense: 10 percent or so of the shares announced to be retired via, and a 2 percent jump is explainable via typical earnings. I doubt you'd find an engineer paid in RSUs who wanted to end buyback programs, but maybe one will pop up on HN and enlighten us.
    - int_19h 8y ago
      Compared to the "bonus" that high-level execs and other big shareholders get, it's not even peanuts. The issue here isn't the absolute number, it's who benefits relative to whom.
      - 8y ago
h4b4n3r0 8y ago
But worker pay won’t go up unless there’s a shortage of workers. This is orthogonal to worker pay.
- toomuchtodo 8y ago
  Worker pay goes up with unionization and collective bargaining without needing a tight (usually temporary) labor market. Otherwise, we end up in a highly cyclical economic condition where employment conditions are tolerable during tight labor markets, but are downright terrible when there is a surplus of labor (note only recently, with unemployment near 3.9%, the lowest unemployment rate since 2000, that employers are considering usually undesirable candidates [criminal records, no college degree, etc]). Why is this undesirable? Simple. Lower and middle class workers drive the economy with their consumption. If they don't have stability, they don't spend. If they don't spend, the velocity of money through the economy decreases. You want workers to feel comfortable spending, and the only way to do that is by giving them stability along with a fair wage.
  - h4b4n3r0 8y ago
    Sure. I’m just saying worker pay issue is largely orthogonal to stock buybacks or tax cuts. It’s not like, all things being equal, the revenue would be spent on workers anyway.
    - toomuchtodo 8y ago
      > It’s not like, all things being equal, the revenue would be spent on workers anyway. It's possible it would be if it was more tax advantageous to pay workers then to pay out profits as buybacks through the most recent tax cuts. Clearly, taxes matter in corporate decision making, as large multinationals were keeping their cash offshore as long as possible, waiting for a tax holiday.
      - h4b4n3r0 8y ago
        Hence the “all things being equal” qualification.
hueving 8y ago
It is not the job of companies to give excess capital to their workers. Where did you get that idea from? The rate workers are paid depends on the market for their skills and what retention the company wants. Worker pay will increase as the economy heats up and causes the labor pool to tighten.
- RandomInteger4 8y ago
  I got that idea from being a decent human being that understands that workers will work more efficiently if they're not struggling in their personal lives; a struggle which can happen as a result of the market undervaluing humans with respect to the cost of living, and the workers lacking the bargaining power to demand what they need / deserve.
  - hndamien 8y ago
    Struggles can be pretty motivating, unfortunately.
    - lawnchair_larry 8y ago
      Only if they lead to progress. Treading water is demotivating.
    - felix_nagaand 8y ago
      For the 0.x% of people that breakout and exceed their demographics statistical expectations by orders of magnitude? Yeah, sure, that's true. What about for the rest of the population that doesn't? They're burnt out, disabled, addicted, ill, obese, unhappy, indebted, deluded, ignorant, and servile.
- rorykoehler 8y ago
  In that case the government needs to tax corporations at a level that allows them provide the necessary services to workers that workers can't afford on their shitty incomes (ie healthcare, education, transport & housing etc). This isn't happening. Governments are handing out cash to companies at the expense of society and then the companies are double dipping again.

joshuaheard 8y ago

The media is against it because Trump. I don't see a difference between the corporation using the money or individuals. If the corporation thinks it doesn't need the money, it is probably better off in the hands of individual investors.

the_solenoid 8y ago

Because it is creating a huge short-term bubble of raised stock value when the companies have done nothing to actually increase their value. It's another cog in a huge crash for no reason whatsoever except to enrich a few people.

deleted 8y ago
[deleted]
mercutio2 8y ago
This is... not how bubbles work, as far as I know? The idealized enterprise value of a firm changes not one whit whether capital is returned to investors via a dividend or a stock buy back. There could conceivably be small differences in transaction costs between the two, but in practice, they’re very similar. Generally, the enterprise value of large amounts of cash for most firms is less-than-par, because investors fear management making vanity purchases that destroy value. So long term investors are much happier if capital is returned, and much happier if the method of return is via stock buy back.
- hakfoo 8y ago
  Perhaps they should be keeping management on a tighter leash if the only likely outcomes they're capable of are "vanity purchases that destroy value" and buying back stock. If you've got mountains of free cash, there are a lot more exciting opportunities out there. You can afford to make higher-risk/higher-reward investments. You can buffer yourself from that next surprise recall/product failure/fulfillment problem. You can make sure you have a stake in anything that looks like it could someday be an existential threat.
  - mercutio2 8y ago
    Removing liquid assets from the balance sheet is the main way boards maintain a tight leash. It’s one step beneath firing an executive. There’s a reason (many) successful companies don’t just go off and become massive conglomerates attempting to pursue every idea any executive has. Areas where the board feels it has a competitive advantage, an investment opportunity, and enough management capacity to oversee the new investment are not, in fact, dime a dozen.

jldugger 8y ago

It's oddly coauthored by an economist. To quote his (likely self authored) wikipedia page: > Lazonick’s research has focused on the role of the innovative business enterprise in generating productivity and sharing these gains with employees as the foundation for stable and equitable economic growth.

arduanika 8y ago
Oddly, economists way more laureled than this guy crashed LTCM.

arduanika 8y ago

Agreed. Here's how I'd suggest reading this kind of article and thread: read it through while replacing the word "buyback" with "dividend", and see how 90% of the arguments fall away (or to be more charitable, become part of unrelated debates). A buyback is a roundabout way of paying a dividend, with the exact same effect (modulo capital gains tax, and I'm not talking about something like our b.s. subsidy of private equity services via the carried interest loophole, which is a creative way of paying a subsidy of dubious merit. What I mean here is, if companies were forced to pay dividends instead of buybacks, the superrich who can afford financial advisors would be organized enough to avoid paying, where as the middle class investor who is not playing with perfect strategy would pay a little more in capital gains, simply because it's hard to get the timing right unless you have billions of dollars at stake). For example, a sentiment like: "A history of buybacks has a positive long-term effect on stock prices, because investors like buybacks." becomes "A history of dividends has a positive long-term effect on stock prices, because investors like dividends." At that point, you're left with the somewhat valid 10% of the argument: trading in the open market causes short term price moves. Is there is any evidence that the SEC is insufficiently vigilant against, say, any executives who exercise options around the buybacks? If so, that does constitute manipulation by the executives and negligence by the regulators! If not, the SEC is doing its job. The opinion piece makes Rule 10b-18 out to be some kind of backroom deal, whereas this is the SEC doing its job: clarifying the law with enough precision that everyone is playing by the same rules. The SEC is charged with making & reassessing these rules. For example, if they thought that 25% of ADV makes too much noise and is bad for the market, they can tweak the parameters. Some reactions to other sentiments on this thread: > I wish more big stocks... paid regular dividends instead of buybacks Money is money. It doesn't matter whether you feel paid; it matters that a buyback does in fact pay you a dividend. > This is orthogonal to worker pay Bingo. This discussion is orthogonal to important questions of unequal opportunities or outcomes, or of redistribution, or the growth of intra-national inequality (while incidentally, things have become more equal inter-nation).

Fomite 8y ago
"Money is money. It doesn't matter whether you feel paid; it matters that a buyback does in fact pay you a dividend." The difference is a buyback only turns into money if you sell.

tboyd47 8y ago

It's really just one academic (William Lazonick) who seems to be really good at promoting his theory to the press. It seems like every time I see this topic on HN it's in connection with him. That said, I actually think his theory is a reasonable one and I'm more confused by comments on HN like this one. It sounds like you're saying essentially (1) your buddies disagree and they know better, and (2) buybacks may help the economy overall because they move cash from less efficient businesses into more efficient ones. Are you saying that the company buying its own shares is doing so because it's not very efficient? Shouldn't efficiency be reflected in the price of a business due to market forces? If the only place a company can find to put extra cash is buying out its own shares then that doesn't sound like a valuable business to me, and in a healthy market I would expect the price to go down, not up.

lr4444lr 8y ago
I'm saying that, as a lay person myself, I am happy to be convinced by a persuasive argument made in good faith by a credible source. My friends and acquaintances who are knowledgeable in this field talking to me privately have less at stake professionally than someone writing an op-ed for public consumption. Now, I am happy to change my point of view when I am unable or haven't the time to learn a topic more on depth even if I don't fully understand the details or resolutions of apparent superficial paradoxes. But when even basic explanations from an author defy logical sense - not a lack of domain knowledge - it raises a red flag for me. I'm not going to suspend critical thinking to entertain the fallacy of authority. I only cite the counterarguments I cite because even in their simplicity they demonstrate gaps in the case the author is making. I am more than happy to have someone better versed give a better account for why buybacks are worse than, say, sitting on cash or dividends.
- tboyd47 8y ago
  Oops, I didn't mean to put you personally on the defensive there, I was honestly asking your thoughts. By the way, I managed to find a really good piece on Bloomberg that lays out both sides in a pretty objective way: https://www.bloomberg.com/view/articles/2018-05-08/apple-s-stock-buyback-isn-t-as-simple-as-warren-buffett-says https://www.bloomberg.com/view/articles/2018-05-08/apple-s-s... I'm no expert, but I feel like sitting on cash isn't as terrible a thing as people pretend. Cash encourages risk taking and innovation. The more cash you have, the bigger risks you can take. Nintendo keeps a lot of cash around and they're one of the most consistently innovative game companies. Sometimes their products flop (Wii U), but sometimes they're wild successes (Switch).

mishkinf 8y ago

It is a short term injection of value into stocks. This clearly can be abused. That money which could have been used to invest in, oh say hiring more Americans or paying employees better wages, or infrastructure, or anything with long-term value generation is rather diverted and put into stocks, which is a short term appreciation. The vast majority of stock is owned by the the very wealthy and many people at the bottom have next to zero or zero stock ownership. This obviously is a threat to a balanced society and the reduction of inequality. If a company wants to increase its stock value, why not invest the money it has into long-term growth investments rather than driving up the stocks? The decision to perform stock buy-backs could be an indication of the general pessimism that corporations have about the economy. If consumer debt is at an all time hight, how can we find more people to buy the products we are making? We tried giving people more debt than they could handle (mortgages) and that ended in spectacular disaster in 2008. So maybe the only thing corporations can do to increase value is to rely on buying back stocks! Makes a lot of money for some people..