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> Companies exploit this relationship now by destroying their balance sheets and using buybacks to boost their relative market caps vs other companies. Buying
by mrep 7y ago
> Companies exploit this relationship now by destroying their balance sheets and using buybacks to boost their relative market caps vs other companies.
Buying back shares doesn't increase your market cap, it increases the value of each individual stock since they now own a larger percentage share of future earnings.
> to capture more passive investment money flow.
It has no real effect because index funds will actually have to sell stock from companies who do buybacks in order to decrease their share of the company back to normal proportional levels.
- gzu 7y agoIn practice it does increase market cap because constantly buying back shares increases PE multiple growth which then makes the stock then sell at a higher valuations since they are showing (artificial) growth. The long term stability of those buybacks isn’t taken into account with valuation models. Every new dollar put into index funds gets invested proportionally in each company to the market cap of SP 500. Microsoft gets bid nearly 4.5c on every dollar. The top 10 stocks combined get 25c on every dollar.
- mrep 7y ago> The long term stability of those buybacks isn’t taken into account with valuation models. Really? The money that can be made in finance results in billions of dollars of wages and you think the PHDs they can hire with that money cannot properly evaluate the effect of stock buybacks in their valuation models? > Every new dollar put into index funds gets invested proportionally in each company to the market cap of SP 500. Microsoft gets bid nearly 4.5c on every dollar. The top 10 stocks combined get 25c on every dollar. What's your point?