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What is also dangerous are zombie corporations stuffed with excess capital forced to reinvest it at subpar rates of return or go on wasteful m&a sprees because

What is also dangerous are zombie corporations stuffed with excess capital forced to reinvest it at subpar rates of return or go on wasteful m&a sprees because they can’t return capital to where it can be most efficiently redeployed into other investments. I’m not saying buybacks can’t be abused but if you want to see a corporate environment where capital can’t be recirculated look to Japan. I don’t think many people would say the last few decades of Japan are a great example of economic dynamism. The common refrain among many critics is that “Wall Street” is short sighted and can’t make long term investments. Really? At this point you have 10b public valuations based on revenues which won’t appear for a decade at best (flying taxi companies anyone) while value stocks paying high free cash flow today languish at single digit earnings multiples. Any company which has a viable growth strategy for invested capital gets a ton of credit from the market, making capital return a last resort. So the idea that buybacks are somehow starving growth investment seems strained.

vladTheInhaler 5y ago
Not every business has room to grow by a factor of 1000 or 100 or even two though. Some of them are close to the largest and most profitable they are ever going to be. I think the criticism of Wall Street is usually that they can't leave those companies alone, and have a compulsive need to squeeze what looks like exponential growth out of them through cheap trick like cutting staffing levels and shaving R&D budgets, at the expense of long-term viability. Th other side of the coin with regard to "economic dynamism" is robustness against systemic shocks. See for instance this company [1] which started over 1000 years ago, and due to its lack of "dynamism" has cash on hand to survive indefinitely with no revenue - a property that turned out useful when a global pandemic disrupted their operations. Wall Street investors get absolutely no credit from me for expecting to wait ten whole years for their absurd, physics-defying hypergrowth. When they are lining up to fund a stand that will make mochi by hand for the next 1000 years, then I will concede that they may have learned a bit about long-term planning. [1] https://www.nytimes.com/2020/12/02/business/japan-old-companies.html https://www.nytimes.com/2020/12/02/business/japan-old-compan...
grapist420 5y ago
what corporations in America are zombies? Buybacks are happening in sectors like tech as opposed to ones like utilities, which are more zombieish
- toomuchtodo 5y ago
  https://www.federalreserve.gov/econres/notes/feds-notes/us-zombie-firms-how-many-and-how-consequential-20210730.htm https://www.federalreserve.gov/econres/notes/feds-notes/us-z...

vladTheInhaler 5y ago

Not every business has room to grow by a factor of 1000 or 100 or even two though. Some of them are close to the largest and most profitable they are ever going to be. I think the criticism of Wall Street is usually that they can't leave those companies alone, and have a compulsive need to squeeze what looks like exponential growth out of them through cheap trick like cutting staffing levels and shaving R&D budgets, at the expense of long-term viability. Th other side of the coin with regard to "economic dynamism" is robustness against systemic shocks. See for instance this company [1] which started over 1000 years ago, and due to its lack of "dynamism" has cash on hand to survive indefinitely with no revenue - a property that turned out useful when a global pandemic disrupted their operations. Wall Street investors get absolutely no credit from me for expecting to wait ten whole years for their absurd, physics-defying hypergrowth. When they are lining up to fund a stand that will make mochi by hand for the next 1000 years, then I will concede that they may have learned a bit about long-term planning. [1] https://www.nytimes.com/2020/12/02/business/japan-old-companies.html https://www.nytimes.com/2020/12/02/business/japan-old-compan...

grapist420 5y ago

what corporations in America are zombies? Buybacks are happening in sectors like tech as opposed to ones like utilities, which are more zombieish

toomuchtodo 5y ago
https://www.federalreserve.gov/econres/notes/feds-notes/us-zombie-firms-how-many-and-how-consequential-20210730.htm https://www.federalreserve.gov/econres/notes/feds-notes/us-z...