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I think it's poor form to just refer to the opposing position in an argument as a "meme", then feel as though simply referring to it as a "meme" makes it so you

I think it's poor form to just refer to the opposing position in an argument as a "meme", then feel as though simply referring to it as a "meme" makes it so you don't need to actually make a counterargument. I see this a lot on the internet lately and I'm not sure why people think that different opinions can just be shrugged off and called "memes". That's not even what a meme is! The author makes the point that, when companies spend so much on stock buybacks they don't have reserves to keep things running in economic downturns, thus leaving them in grave danger should recession come around, and leaves their employees more exposed than they need to be. I think this is a point worth talking about, especially if you feel it's not true, because by calling it a meme and not countering it, you've given no chance to bat for your own opinion and offering counterpoints. On the subject of the first quote, I'm no economist, but it seems perfectly feasible that optimizing for shareholder value does not perfectly correlate to optimized productivity. For example, Musk wants to take Tesla private because he feels the quarterly stock review cycle restricts his ability to innovate and think long term. Musk is quite the capitalist, so I think the idea that optimizing for share price being bad for productivity is certainly worth presenting at the table.

darawk 8y ago
> I think it's poor form to just refer to the opposing position in an argument as a "meme", then feel as though simply referring to it as a "meme" makes it so you don't need to actually make a counterargument. If you read my comment, i'm applying Hitchen's razor: That which can be asserted without evidence, can be dismissed without evidence. They didn't make an argument. > I see this a lot on the internet lately and I'm not sure why people think that different opinions can just be shrugged off and called "memes". That's not even what a meme is! First of all, yes, it is exactly what a meme is. A meme is a socially transmitted idea with virality. That is precisely what I am asserting this "buybacks are evil" idea is. > The author makes the point that, when companies spend so much on stock buybacks they don't have reserves to keep things running in economic downturns, thus leaving them in grave danger should recession come around, and leaves their employees more exposed than they need to be. The author does try to make that throwaway point, though of course, provides no evidence that it was in any way related to buybacks. Just think through the idea you're asserting here: In the interest of maximizing shareholder value the company is going to make itself more likely to go bankrupt in the future? How does that maximize shareholder value? Secondly, even if they were doing that, which there is no evidence that they are: if you ban buybacks, they'll just switch to dividends. If you ban dividends, you've now banned all mechanisms by which investors may be remunerated for their capital investment, and thereby effectively banned the stock market.
- coltonv 8y ago
  I've got no stake in this. I don't really care if buybacks are good or bad. But the author makes a point that buybacks, being so tax effective, make companies much more likely to spend their money on stock buyback rather than rainy day funds and investing in research/development/employees. I think that's an interesting idea, I don't know if it's right or not, but since you just keep saying the argument makes no points while making no points of your own, I have no way knowing why you feel this position is inaccurate. Could you argue against that point instead of dismissing it? I'd like to hear what you think.
  - darawk 8y ago
    > I've got no stake in this. I don't really care if buybacks are good or bad. But the author makes a point that buybacks, being so tax effective, make companies much more likely to spend their money on stock buyback rather than rainy day funds and investing in research/development/employees. Can you point me to where they make that argument? I don't see it. They do sort of hint at it, here: > To understand the magnitude of this shift, we analyzed financial data from 232 companies in the S.&P. 500 Index that were publicly listed in 1981, before the rule, and were still public through 2016. We found that from 1981 to 1983, these companies spent 4.3 percent of profits on buybacks. In comparison, from 2014 to 2016, these same companies spent 59 percent of their profits buying back their own stock. Dividends absorbed just under half of profits in both periods. This data looks like it's trying to make you believe that these companies are allocating more capital to shareholder remuneration than they otherwise would. But it's not actually saying that. Dividends and buybacks are what you do with profits. If you re-invest your profits, they're not profits anymore, they're costs, so they aren't accounted as profit. The point that you are making (that afaik, the article doesn't explicitly make) is a good one (if true): That buybacks shift the capital preference curve towards returning money to shareholders. If you wanted to prove that, you wouldn't look at the share of profits that go to buybacks, because all that would show you is that companies are preferring buybacks over dividends. Not that they are preferring buybacks over re-investment. Thinking briefly about it, you'd probably want to look at changes in revenue / capex, or changes in net-income to capex over time and correlate them with share of profits devoted to buybacks. AFAIK, the authors have not done this, and certainly haven't done it in this article. EDIT: In a paper written by the authors, they do sort of do this, and it doesn't really show much: > By decade, for 1984-1993, 1994-2003, and 2004-2013, total distributions to shareholders of these 248 companies were 79 percent, 79 percent, and 84 percent respectively, with the proportion of net income devoted to buybacks rising from 25 percent to 37 percent to 47 percent. High total payout ratios among major U.S corporations, therefore, are not new, but over the past decade buybacks have predominated in distributions to shareholders. Note: previously in the article they establish that preference for buybacks is very low in 1984, and goes up dramatically through to present (2013). So, 1984 is representative of a 'low buyback' time. So, the payout ratio from net income went from 79 to 84 percent. That's not totally trivial, but it certainly isn't "save the economy" levels of relevant. They basically acknowledge this: "High total payout ratios among major U.S corporations, therefore, are not new, but over the past decade buybacks have predominated in distributions to shareholders.". But make no real attempt to reconcile this with their point. And notably, they make no attempt to control for other factors here. That 5 percent bump may be caused by higher margins (e.g. in tech) or any number of other economic factors. Being extremely generous, the data is suggestive of a slight preference shift for returning capital to shareholders over re-investment in the business. However, to actually conclude that you'd need to do something much more rigorous than this. And to further conclude that this preference shift has negative effects on the economy, you'd need to do a lot more than this. Paper: https://www.brookings.edu/wp-content/uploads/2016/06/lazonick.pdf https://www.brookings.edu/wp-content/uploads/2016/06/lazonic...
nradov 8y ago
The quarterly stock review cycle hasn't restricted Jeff Bezos' ability to innovate and think long term. Investors will tolerate losses for a long time if you have a plan and execute on it consistently. But if you constantly over promise and under deliver that impacts management credibility, which will naturally be reflected in the stock price.
- coltonv 8y ago
  Sure, and I never said the stock price and innovation are inversely correlated, but I have a feeling that it's a very reasonable idea that optimizing for stock price based on speculation in the free market is an imperfect way to encourage productivity and innovation, and it's worth discussing how the economy could be restructured in a way that did so more perfectly than stock prices. I don't know what that system would be, and I'm not going to come here and say it's time for a socialist revolution, but perhaps we could make a better free market and we'd all be better off without speculated stock prices being our primary source of motivation.
  - WalterBright 8y ago
    > speculated stock prices Speculation drives stock prices to where they ought to be. The whole point is to look for overvalued and undervalued stocks.
philwelch 8y ago
> The author makes the point that, when companies spend so much on stock buybacks they don't have reserves to keep things running in economic downturns, thus leaving them in grave danger should recession come around, and leaves their employees more exposed than they need to be. I think this is a point worth talking about, especially if you feel it's not true, because by calling it a meme and not countering it, you've given no chance to bat for your own opinion and offering counterpoints. OK, let's address that argument. The alternative to stock buybacks is stock dividends. Both of those mechanisms deplete corporate cash reserves, but stock buybacks do them in a way that causes the stock value to appreciate, which has tax benefits for shareholders that outright dividends do not. If there's no potential for corporations to distribute their cash reserves to their shareholders at all, then there is no point in having a stock market in the first place. > For example, Musk wants to take Tesla private because he feels the quarterly stock review cycle restricts his ability to innovate and think long term. Musk is quite the capitalist, so I think the idea that optimizing for share price being bad for productivity is certainly worth presenting at the table. There are countless businesses, including some of the most valuable public businesses in the world, for whom the quarterly review cycle is not an impediment to innovation and success. Musk is probably humiliated that Tesla is running out of money and has not been doing a good job of handling the transparency involved in having a publicly owned company.
WalterBright 8y ago
Companies can issue more shares at any time in order to raise money. Doing a stock buyback is easily reversed, not a trap.

darawk 8y ago

> I think it's poor form to just refer to the opposing position in an argument as a "meme", then feel as though simply referring to it as a "meme" makes it so you don't need to actually make a counterargument. If you read my comment, i'm applying Hitchen's razor: That which can be asserted without evidence, can be dismissed without evidence. They didn't make an argument. > I see this a lot on the internet lately and I'm not sure why people think that different opinions can just be shrugged off and called "memes". That's not even what a meme is! First of all, yes, it is exactly what a meme is. A meme is a socially transmitted idea with virality. That is precisely what I am asserting this "buybacks are evil" idea is. > The author makes the point that, when companies spend so much on stock buybacks they don't have reserves to keep things running in economic downturns, thus leaving them in grave danger should recession come around, and leaves their employees more exposed than they need to be. The author does try to make that throwaway point, though of course, provides no evidence that it was in any way related to buybacks. Just think through the idea you're asserting here: In the interest of maximizing shareholder value the company is going to make itself more likely to go bankrupt in the future? How does that maximize shareholder value? Secondly, even if they were doing that, which there is no evidence that they are: if you ban buybacks, they'll just switch to dividends. If you ban dividends, you've now banned all mechanisms by which investors may be remunerated for their capital investment, and thereby effectively banned the stock market.

coltonv 8y ago
I've got no stake in this. I don't really care if buybacks are good or bad. But the author makes a point that buybacks, being so tax effective, make companies much more likely to spend their money on stock buyback rather than rainy day funds and investing in research/development/employees. I think that's an interesting idea, I don't know if it's right or not, but since you just keep saying the argument makes no points while making no points of your own, I have no way knowing why you feel this position is inaccurate. Could you argue against that point instead of dismissing it? I'd like to hear what you think.
- darawk 8y ago
  > I've got no stake in this. I don't really care if buybacks are good or bad. But the author makes a point that buybacks, being so tax effective, make companies much more likely to spend their money on stock buyback rather than rainy day funds and investing in research/development/employees. Can you point me to where they make that argument? I don't see it. They do sort of hint at it, here: > To understand the magnitude of this shift, we analyzed financial data from 232 companies in the S.&P. 500 Index that were publicly listed in 1981, before the rule, and were still public through 2016. We found that from 1981 to 1983, these companies spent 4.3 percent of profits on buybacks. In comparison, from 2014 to 2016, these same companies spent 59 percent of their profits buying back their own stock. Dividends absorbed just under half of profits in both periods. This data looks like it's trying to make you believe that these companies are allocating more capital to shareholder remuneration than they otherwise would. But it's not actually saying that. Dividends and buybacks are what you do with profits. If you re-invest your profits, they're not profits anymore, they're costs, so they aren't accounted as profit. The point that you are making (that afaik, the article doesn't explicitly make) is a good one (if true): That buybacks shift the capital preference curve towards returning money to shareholders. If you wanted to prove that, you wouldn't look at the share of profits that go to buybacks, because all that would show you is that companies are preferring buybacks over dividends. Not that they are preferring buybacks over re-investment. Thinking briefly about it, you'd probably want to look at changes in revenue / capex, or changes in net-income to capex over time and correlate them with share of profits devoted to buybacks. AFAIK, the authors have not done this, and certainly haven't done it in this article. EDIT: In a paper written by the authors, they do sort of do this, and it doesn't really show much: > By decade, for 1984-1993, 1994-2003, and 2004-2013, total distributions to shareholders of these 248 companies were 79 percent, 79 percent, and 84 percent respectively, with the proportion of net income devoted to buybacks rising from 25 percent to 37 percent to 47 percent. High total payout ratios among major U.S corporations, therefore, are not new, but over the past decade buybacks have predominated in distributions to shareholders. Note: previously in the article they establish that preference for buybacks is very low in 1984, and goes up dramatically through to present (2013). So, 1984 is representative of a 'low buyback' time. So, the payout ratio from net income went from 79 to 84 percent. That's not totally trivial, but it certainly isn't "save the economy" levels of relevant. They basically acknowledge this: "High total payout ratios among major U.S corporations, therefore, are not new, but over the past decade buybacks have predominated in distributions to shareholders.". But make no real attempt to reconcile this with their point. And notably, they make no attempt to control for other factors here. That 5 percent bump may be caused by higher margins (e.g. in tech) or any number of other economic factors. Being extremely generous, the data is suggestive of a slight preference shift for returning capital to shareholders over re-investment in the business. However, to actually conclude that you'd need to do something much more rigorous than this. And to further conclude that this preference shift has negative effects on the economy, you'd need to do a lot more than this. Paper: https://www.brookings.edu/wp-content/uploads/2016/06/lazonick.pdf https://www.brookings.edu/wp-content/uploads/2016/06/lazonic...

nradov 8y ago

The quarterly stock review cycle hasn't restricted Jeff Bezos' ability to innovate and think long term. Investors will tolerate losses for a long time if you have a plan and execute on it consistently. But if you constantly over promise and under deliver that impacts management credibility, which will naturally be reflected in the stock price.

coltonv 8y ago
Sure, and I never said the stock price and innovation are inversely correlated, but I have a feeling that it's a very reasonable idea that optimizing for stock price based on speculation in the free market is an imperfect way to encourage productivity and innovation, and it's worth discussing how the economy could be restructured in a way that did so more perfectly than stock prices. I don't know what that system would be, and I'm not going to come here and say it's time for a socialist revolution, but perhaps we could make a better free market and we'd all be better off without speculated stock prices being our primary source of motivation.
- WalterBright 8y ago
  > speculated stock prices Speculation drives stock prices to where they ought to be. The whole point is to look for overvalued and undervalued stocks.

philwelch 8y ago

> The author makes the point that, when companies spend so much on stock buybacks they don't have reserves to keep things running in economic downturns, thus leaving them in grave danger should recession come around, and leaves their employees more exposed than they need to be. I think this is a point worth talking about, especially if you feel it's not true, because by calling it a meme and not countering it, you've given no chance to bat for your own opinion and offering counterpoints. OK, let's address that argument. The alternative to stock buybacks is stock dividends. Both of those mechanisms deplete corporate cash reserves, but stock buybacks do them in a way that causes the stock value to appreciate, which has tax benefits for shareholders that outright dividends do not. If there's no potential for corporations to distribute their cash reserves to their shareholders at all, then there is no point in having a stock market in the first place. > For example, Musk wants to take Tesla private because he feels the quarterly stock review cycle restricts his ability to innovate and think long term. Musk is quite the capitalist, so I think the idea that optimizing for share price being bad for productivity is certainly worth presenting at the table. There are countless businesses, including some of the most valuable public businesses in the world, for whom the quarterly review cycle is not an impediment to innovation and success. Musk is probably humiliated that Tesla is running out of money and has not been doing a good job of handling the transparency involved in having a publicly owned company.

WalterBright 8y ago

Companies can issue more shares at any time in order to raise money. Doing a stock buyback is easily reversed, not a trap.