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Is that at all surprising when you have corporate execs, hedge funds and private investors reaching into the cookie jar, not with one hand, but with both and sh

Is that at all surprising when you have corporate execs, hedge funds and private investors reaching into the cookie jar, not with one hand, but with both and shovel out the money into their bank accounts? “The biggest U.S. airlines spent 96% of free cash flow last decade on buying back their own shares.“ “In 2018 [...] companies in the S&P 500 Index did a combined $806 billion in buybacks, about $200 billion more than the previous record set in 2007.“ https://www.bloomberg.com/news/articles/2020-03-16/u-s-airlines-spent-96-of-free-cash-flow-on-buybacks-chart https://www.bloomberg.com/news/articles/2020-03-16/u-s-airli... https://hbr.org/2020/01/why-stock-buybacks-are-dangerous-for-the-economy https://hbr.org/2020/01/why-stock-buybacks-are-dangerous-for...

pjc50 6y ago
The thing is, the return of cash to investors (or growth) is kind of the point of investing; whether that's dividends or buybacks is a matter of tax treatment. (Execs looting is a bit more of a problem)
- colinjoy 6y ago
  It is not the same. Dividends reward continued investors who also have a bigger incentive to care about long term health of the corporation. Buybacks reward those who deinvest (sell shares).
  - xwdv 6y ago
    Why is that a bad thing? The money gets deinvested and then reinvested into other growth companies, giving them a chance to grow as well.
    - take_a_breath 6y ago
      Is there evidence that the returns are “reinvested into other growth companies”? Why would a growth company return money to investors? They should be using that capital to grow.
      - ac29 6y ago
        Two reasons that come to mind: 1) Not all growth is easy or cheap. Investing $X to grow by Y% doesn't mean you can invest 2$X to grow by 2Y%. At some point the ROI is close to zero or even negative, though I would agree with risk-free interest rates also close to zero, nearly any positive ROI is better than cash distributions. 2) Some investors want a portion of profits to be distributed when a company is doing well. Investing in growth is a risk, distributing cash is not.
        take_a_breath 6y ago
        Once the value of distributing profits outweighs re-investing in growth, you are no longer a growth company.
      - xwdv 6y ago
        Because you’re not going to be a growth company forever, and growth companies are where the money is at. So distribute your profits and let’s put that money into other companies ready to explode.
  - roenxi 6y ago
    If the company jettisons 2% of its book value in a buyback, sell 2% of your shares. Practically speaking it isn't easy but there is no theoretical problem. It might have changed, but there was a time when companies would have to be stark raving mad to return money as an income stream rather than a capital return. It made no sense after accounting for the tax code.
  - deleted 6y ago
    [deleted]
  - matwood 6y ago
    The problem with dividends is they force a taxable event onto shareholders. Many shareholders prefer buybacks because it lets the shareholder control when to get taxed by selling shares. Either is a wash when it comes to caring about the long term health of the company. If all my gains are through buybacks I absolutely care about the health of the company at least until the point I sell.
  - dasudasu 6y ago
    Not really. A buyback makes your shares inherently worth more on a per share basis. If you compare it to a reinvestment of the dividends (DRIP), then it's really equivalent, except that one is a taxable event but not the other. You're always free to sell shares in any scenario if you need the capital since the stock market is generally pretty liquid.
- take_a_breath 6y ago
  Buybacks are used to pump EPS and hit quarterly/annual stock price targets for execs.
- kqvamxurcagg 6y ago
  Governments have allowed and encouraged companies to become too big to fail. They have failed to evolve anti-trust laws to our modern age of information monopoly, this would of encouraged more openness and competition. Now when these mega-corps run into difficulty they get bailouts. This is definitely not capitalism. All of these companies should be forced to hold reserves given their systemic importance to various industries.
roenxi 6y ago
> The biggest U.S. airlines spent 96% of free cash flow last decade on buying back their own shares. Imagine a family with a really detailed budget. They lose their house, out on the street. Big financial problems. Someone comes up to you and says "they spent 96% of they money they budgeted for holidays on - get this - travelling and holidays". There might be problems there, but the FCF is defined as "what is available for distribution among all the securities holders" [0]. It is perfectly reasonable for 96% of it to go to buybacks. There are a lot of problems with the buybacks and I liked the article; but the 96% quote is meaningless. [0] https://en.wikipedia.org/wiki/Free_cash_flow https://en.wikipedia.org/wiki/Free_cash_flow
- tchaffee 6y ago
  Bad analogy. Why are they going on holidays when they are going to lose their house? Cancel the travel and pay the mortgage.
  - roenxi 6y ago
    That is part of the analogy too, I chose it with some care. And besides you'll have no trouble imagining a scenario where cancelling the travel wouldn't have helped. EDIT - And if they did that then they'd arguably be spending 100% of their budget for holidays on holidays.
    - tchaffee 6y ago
      Canceling the travel wouldn't have helped who? For sure it would have helped the people they owe money to. Just because my own finances can't be saved doesn't mean it's vacation time and screw my lenders. So no, I cannot imagine a scenario where canceling the travel and attending to obligations would not help.
      - roenxi 6y ago
        Crikey. (1) That is a failure of imagination - maybe the breadwinner was run over by a car so the mortgage become unpayable, but up to that moment they were exemplary debtors. (2) Owing someone money doesn't mean suddenly a person is a debt slave who has to devote their whole life to the loan. They still get to discretion to make decisions about their own finances. (3) Forcing someone to live a life that spartan might increase the risk of them defaulting on the loan. Speaking as a tiny-sometime-lender, I wouldn't insist on that for anyone who I lend money to.

pjc50 6y ago

The thing is, the return of cash to investors (or growth) is kind of the point of investing; whether that's dividends or buybacks is a matter of tax treatment. (Execs looting is a bit more of a problem)

colinjoy 6y ago
It is not the same. Dividends reward continued investors who also have a bigger incentive to care about long term health of the corporation. Buybacks reward those who deinvest (sell shares).
- xwdv 6y ago
  Why is that a bad thing? The money gets deinvested and then reinvested into other growth companies, giving them a chance to grow as well.
  - take_a_breath 6y ago
    Is there evidence that the returns are “reinvested into other growth companies”? Why would a growth company return money to investors? They should be using that capital to grow.
    - ac29 6y ago
      Two reasons that come to mind: 1) Not all growth is easy or cheap. Investing $X to grow by Y% doesn't mean you can invest 2$X to grow by 2Y%. At some point the ROI is close to zero or even negative, though I would agree with risk-free interest rates also close to zero, nearly any positive ROI is better than cash distributions. 2) Some investors want a portion of profits to be distributed when a company is doing well. Investing in growth is a risk, distributing cash is not.
      - take_a_breath 6y ago
        Once the value of distributing profits outweighs re-investing in growth, you are no longer a growth company.
    - xwdv 6y ago
      Because you’re not going to be a growth company forever, and growth companies are where the money is at. So distribute your profits and let’s put that money into other companies ready to explode.
- roenxi 6y ago
  If the company jettisons 2% of its book value in a buyback, sell 2% of your shares. Practically speaking it isn't easy but there is no theoretical problem. It might have changed, but there was a time when companies would have to be stark raving mad to return money as an income stream rather than a capital return. It made no sense after accounting for the tax code.
- deleted 6y ago
  [deleted]
- matwood 6y ago
  The problem with dividends is they force a taxable event onto shareholders. Many shareholders prefer buybacks because it lets the shareholder control when to get taxed by selling shares. Either is a wash when it comes to caring about the long term health of the company. If all my gains are through buybacks I absolutely care about the health of the company at least until the point I sell.
- dasudasu 6y ago
  Not really. A buyback makes your shares inherently worth more on a per share basis. If you compare it to a reinvestment of the dividends (DRIP), then it's really equivalent, except that one is a taxable event but not the other. You're always free to sell shares in any scenario if you need the capital since the stock market is generally pretty liquid.
take_a_breath 6y ago
Buybacks are used to pump EPS and hit quarterly/annual stock price targets for execs.
kqvamxurcagg 6y ago
Governments have allowed and encouraged companies to become too big to fail. They have failed to evolve anti-trust laws to our modern age of information monopoly, this would of encouraged more openness and competition. Now when these mega-corps run into difficulty they get bailouts. This is definitely not capitalism. All of these companies should be forced to hold reserves given their systemic importance to various industries.

roenxi 6y ago

> The biggest U.S. airlines spent 96% of free cash flow last decade on buying back their own shares. Imagine a family with a really detailed budget. They lose their house, out on the street. Big financial problems. Someone comes up to you and says "they spent 96% of they money they budgeted for holidays on - get this - travelling and holidays". There might be problems there, but the FCF is defined as "what is available for distribution among all the securities holders" [0]. It is perfectly reasonable for 96% of it to go to buybacks. There are a lot of problems with the buybacks and I liked the article; but the 96% quote is meaningless. [0] https://en.wikipedia.org/wiki/Free_cash_flow https://en.wikipedia.org/wiki/Free_cash_flow

tchaffee 6y ago
Bad analogy. Why are they going on holidays when they are going to lose their house? Cancel the travel and pay the mortgage.
- roenxi 6y ago
  That is part of the analogy too, I chose it with some care. And besides you'll have no trouble imagining a scenario where cancelling the travel wouldn't have helped. EDIT - And if they did that then they'd arguably be spending 100% of their budget for holidays on holidays.
  - tchaffee 6y ago
    Canceling the travel wouldn't have helped who? For sure it would have helped the people they owe money to. Just because my own finances can't be saved doesn't mean it's vacation time and screw my lenders. So no, I cannot imagine a scenario where canceling the travel and attending to obligations would not help.
    - roenxi 6y ago
      Crikey. (1) That is a failure of imagination - maybe the breadwinner was run over by a car so the mortgage become unpayable, but up to that moment they were exemplary debtors. (2) Owing someone money doesn't mean suddenly a person is a debt slave who has to devote their whole life to the loan. They still get to discretion to make decisions about their own finances. (3) Forcing someone to live a life that spartan might increase the risk of them defaulting on the loan. Speaking as a tiny-sometime-lender, I wouldn't insist on that for anyone who I lend money to.