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When companies have now started to go into debt to buyback shares and artificially raise their EPS, who are they targeting? The people who are actively evaluati

When companies have now started to go into debt to buyback shares and artificially raise their EPS, who are they targeting? The people who are actively evaluating what they're buying, or those asleep at the wheel buying index funds? Index funds might have been a good investment in the past, before wallstreet has figured out how to exploit it like they're doing today.

buttcoinslol 7y ago
> When companies have now started to go into debt to buyback shares and artificially raise their EPS, who are they targeting? Their shareholders, which includes management. Buybacks are essentially dividends in another form. Buybacks have the upside of not being expected to go up indefinitely, and there are no dividend cuts to upset investors.
- topmonk 7y ago
  Why does everyone ignore the second part of my point? Corporations are going into record debt to do this. It is one thing to pay back shareholders by a dividend or buyback or whatever, if the company has extra profits, but it is quite another to borrow money to do it. That works for now, but as soon as those interest rates tick up...
  - buttcoinslol 7y ago
    Money is extremely cheap to borrow, and companies have decided the interest rate risk is lower than the short-term share price gains from borrowing money to do buybacks. Perhaps current management assumes they won't be the ones left holding the bag. I agree with you, when rates go up a large amount of zombie companies being held up by cheap money are going to go bankrupt, and it will have large ripple effects.
glofish 7y ago
From what I understand this exact same argument is reiterated every decade. "It worked in the past but today is different" - invariably ending up with a suggestion to give up increasingly large amounts of your profits to someone that "manages your investments" for you. I would do it if the fees were fixed, once someone asks for a "percent" I call BS. There is no difference between managing 100K and 1M yet you pay 10 times more. I'll stick with Vanguard.
- lonelappde 7y ago
  Vanguard charges 10x for investing 10x more.
  - glofish 7y ago
    Good point - they do indeed! What I was really referring to is someone else doing nothing more than buying a Vanguard ETF and then adding their fees (perhaps an order of magnitude higher) on top of those fees - just to "manage" your money.
- topmonk 7y ago
  It worked in the past but today is different is a vast oversimplification of my argument, and implying I'm either acting in bad faith or hoodwinked by those that are in order to pay off some investment manager is just an attempt to destroy the messenger. Good luck with Vanguard.
  - glofish 7y ago
    My point is that while Wall Street may have figured out index funds better than it used to - it is nowhere near as "figured" out as that of manipulating individual stocks. As the paper points out - holding individual stocks is far riskier and inefficient than that of holding an index stock. Hence my point that while you may have different motivations for writing your piece - in the end, you are advocating for a worse potential outcome for most people. Wall Street would love nothing better than have many people play the stockmarket and try to outsmart the index funds.
lonelappde 7y ago
Huh? Index fund buyers don't read EPS, so the frauds are targeting the dumb active investors. It's generally agreed that index funds are going to eventually destroy the stock market because they are the free market reinvention of a central planning economy relying on fee riding on the valuation work of a shrinking number of active investors, but that's a different problem.
- topmonk 7y ago
  > Index fund buyers don't read EPS, so the frauds are targeting the dumb active investors. I'm not saying the buyer's do. The selection criteria of the index fund may include it. > It's generally agreed that index funds are going to eventually destroy the stock market Or, like I've been saying, companies will find says to adjust their figures to get selected for index funds. And then eventually implode, due to the cost of doing so, which in most cases is quite a lot, taking down the investors along with them.
- glofish 7y ago
  Generally agreed? By whom? Money managers? But of course! Guess what - if you think index funds are not optimal, deploy your own optimal strategy then profit bigly.

buttcoinslol 7y ago

> When companies have now started to go into debt to buyback shares and artificially raise their EPS, who are they targeting? Their shareholders, which includes management. Buybacks are essentially dividends in another form. Buybacks have the upside of not being expected to go up indefinitely, and there are no dividend cuts to upset investors.

topmonk 7y ago
Why does everyone ignore the second part of my point? Corporations are going into record debt to do this. It is one thing to pay back shareholders by a dividend or buyback or whatever, if the company has extra profits, but it is quite another to borrow money to do it. That works for now, but as soon as those interest rates tick up...
- buttcoinslol 7y ago
  Money is extremely cheap to borrow, and companies have decided the interest rate risk is lower than the short-term share price gains from borrowing money to do buybacks. Perhaps current management assumes they won't be the ones left holding the bag. I agree with you, when rates go up a large amount of zombie companies being held up by cheap money are going to go bankrupt, and it will have large ripple effects.

glofish 7y ago

From what I understand this exact same argument is reiterated every decade. "It worked in the past but today is different" - invariably ending up with a suggestion to give up increasingly large amounts of your profits to someone that "manages your investments" for you. I would do it if the fees were fixed, once someone asks for a "percent" I call BS. There is no difference between managing 100K and 1M yet you pay 10 times more. I'll stick with Vanguard.

lonelappde 7y ago
Vanguard charges 10x for investing 10x more.
- glofish 7y ago
  Good point - they do indeed! What I was really referring to is someone else doing nothing more than buying a Vanguard ETF and then adding their fees (perhaps an order of magnitude higher) on top of those fees - just to "manage" your money.
topmonk 7y ago
It worked in the past but today is different is a vast oversimplification of my argument, and implying I'm either acting in bad faith or hoodwinked by those that are in order to pay off some investment manager is just an attempt to destroy the messenger. Good luck with Vanguard.
- glofish 7y ago
  My point is that while Wall Street may have figured out index funds better than it used to - it is nowhere near as "figured" out as that of manipulating individual stocks. As the paper points out - holding individual stocks is far riskier and inefficient than that of holding an index stock. Hence my point that while you may have different motivations for writing your piece - in the end, you are advocating for a worse potential outcome for most people. Wall Street would love nothing better than have many people play the stockmarket and try to outsmart the index funds.

lonelappde 7y ago

Huh? Index fund buyers don't read EPS, so the frauds are targeting the dumb active investors. It's generally agreed that index funds are going to eventually destroy the stock market because they are the free market reinvention of a central planning economy relying on fee riding on the valuation work of a shrinking number of active investors, but that's a different problem.

topmonk 7y ago
> Index fund buyers don't read EPS, so the frauds are targeting the dumb active investors. I'm not saying the buyer's do. The selection criteria of the index fund may include it. > It's generally agreed that index funds are going to eventually destroy the stock market Or, like I've been saying, companies will find says to adjust their figures to get selected for index funds. And then eventually implode, due to the cost of doing so, which in most cases is quite a lot, taking down the investors along with them.
glofish 7y ago
Generally agreed? By whom? Money managers? But of course! Guess what - if you think index funds are not optimal, deploy your own optimal strategy then profit bigly.