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I don’t have a big problem with stock buybacks in general. But if companies buy back stock when times are flush they ought to be issuing new stock to raise mone
by bradleyjg 7y ago
I don’t have a big problem with stock buybacks in general. But if companies buy back stock when times are flush they ought to be issuing new stock to raise money when times are lean. Not putting their hands out to the public fisc.
- hnarn 7y agoJust for the sake of argument, isn't the argument against buybacks that it may skew the indicators for how well the company is doing? You have earnings and then you have amount of shares: buy some shares from the public, and your "earnings per share" goes up even if the earnings haven't changed. In my view, this is radically different from, for example, buying the whole public stock and going private.
- bradleyjg 7y agoIf that were so, then the accounting profession has failed at its core responsibility. But I don’t think it has, the information is there for investors to see. If some investors choose to obsessively focus on a single metric, well—-a fool and his money are soon parted.
- hnarn 7y agoI may be a bit daft here but in what way is this related to the work of accountants? The number isn't wrong, there's just context that's easily missed. The "buyer beware" logic can be used for a lot of things ad infinitum, you could argue the same thing about a company straight up lying about certain sales possibilities etc. but that would legally be fraud, so it's not black and white.
- bradleyjg 7y agoIt would be a failure if there was no way of telling from the financial statement what was going on.
- jsight 7y agoIt isn't accountants. It is all the financial advice and teaching that focuses on Price to Earnings as a meaningful way to measure valuations at the exclusion of a lot of other equally meaningful metrics.
- fmajid 7y agoAs long as companies are free to choose their accountants, there is an intrinsic conflict of interest. It gets even worse when the accountancies offer other professional services like IT consulting.
- rorykoehler 7y agoLean times are absolutely the worst time to issue new shares though. The downward trend could spiral out of control if that was put into practice.
- bradleyjg 7y agoFor that reason business managers may want to hold on to cash rather than buying back shares and investors may want to buy shares in companies run by such managers. If we bail out all the grasshoppers then what incentive is there to be an ant?
- rorykoehler 7y agoAbsolutely agree but a middle ground is to regulate this kind of behavior out.
- bradleyjg 7y agoI don’t know that we can or should regulate how much cash every single business in the country keeps on hand. Financial institutions that pose systemic risks, sure, but if a cruise company goes out of business because it was mismanaged (i.e. didn’t keep enough cash on hand) is that really something regulation should have prevented?
- rorykoehler 7y agoThe argument made elsewhere on this thread was that if the cruise liner employs thousands of people then yes it makes sense to have some sort of rules in place to stop them over-leveraging (or similar) to the point where their failure has knock on effects to the greater community/society. Another argument is that we cannot guarantee letting them fail will happen due to political influence etc so it is better to put in place rules to stop bad behavior in the first place as there is always a risk of corruption when it comes to bailouts.
- 7y ago