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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

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).
- RandomInteger4 8y ago
  Corporations are owned by people. People own stock. People direct the corporation to buyback stock to raise the price of the stock so that they can sell their personal holdings of said stock to enrich themselves. All the board members of said companies own said stock, thus none of them would disagree with the move, because it enriches all of them. It's like Congress agreeing to raise their own pay. Is it rational? Not really, but who among them, the people making the decision on government spending, would disagree with this move? Maybe one or two with principals, but not many. EDIT: Is it rational for the sake of the overall system I mean. It's obviously rational from the perspective of those increasing their own wealth.
AmericanChopper 8y ago
You would expect a healthy market to produce falling prices in response to increased demand? What market forces are you talking about? The remarks about efficiency also seem to be an outcome, not a motivation. Cash in the hands of investors should always be more efficient than cash in the corporate treasury.
hueving 8y ago
If a widget company is pretty much dominating its total addressable market, any excess cash it has should be used to buy back its shares as a way of returning cash to shareholders rather than try to expand into unrelated businesses. The market (i.e. the shareholders getting the cash) is a better mechanism at finding new investments than the executive leadership at the widget company. As a widget company investor I invest in their widget making skills, not their skills in essentially starting new businesses.
- deleted 8y ago
  [deleted]
- RandomInteger4 8y ago
  Who do you think owns most of the stock? The executive leadership at these companies! They're giving themselves a bonus indirectly! That's the point of the buy backs!
  - kgwgk 8y ago
    Can you name one company where management owns most of the shares? (Maybe you can, but I’m curious to see what exemple will you come up with.)
    - yalph 8y ago
      Does it matter whether they hold the most or they hold a lot?
kgwgk 8y ago
> 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. Going down from where to where? If I had a money printing machine that produces one million dollars each day, how is that not a valuable business? (Of course if I knew how to build a second machine for a few billion dollars the business would be even more valuable.)

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).
RandomInteger4 8y ago
Corporations are owned by people. People own stock. People direct the corporation to buyback stock to raise the price of the stock so that they can sell their personal holdings of said stock to enrich themselves. All the board members of said companies own said stock, thus none of them would disagree with the move, because it enriches all of them. It's like Congress agreeing to raise their own pay. Is it rational? Not really, but who among them, the people making the decision on government spending, would disagree with this move? Maybe one or two with principals, but not many. EDIT: Is it rational for the sake of the overall system I mean. It's obviously rational from the perspective of those increasing their own wealth.

AmericanChopper 8y ago

You would expect a healthy market to produce falling prices in response to increased demand? What market forces are you talking about? The remarks about efficiency also seem to be an outcome, not a motivation. Cash in the hands of investors should always be more efficient than cash in the corporate treasury.

hueving 8y ago

If a widget company is pretty much dominating its total addressable market, any excess cash it has should be used to buy back its shares as a way of returning cash to shareholders rather than try to expand into unrelated businesses. The market (i.e. the shareholders getting the cash) is a better mechanism at finding new investments than the executive leadership at the widget company. As a widget company investor I invest in their widget making skills, not their skills in essentially starting new businesses.

deleted 8y ago
[deleted]
RandomInteger4 8y ago
Who do you think owns most of the stock? The executive leadership at these companies! They're giving themselves a bonus indirectly! That's the point of the buy backs!
- kgwgk 8y ago
  Can you name one company where management owns most of the shares? (Maybe you can, but I’m curious to see what exemple will you come up with.)
  - yalph 8y ago
    Does it matter whether they hold the most or they hold a lot?

kgwgk 8y ago

> 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. Going down from where to where? If I had a money printing machine that produces one million dollars each day, how is that not a valuable business? (Of course if I knew how to build a second machine for a few billion dollars the business would be even more valuable.)