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> That's the whole point of share buybacks - it's a way to transfer value to shareholders that definitely isn't considered income. I thought the point of buyba

by adolph 4y ago

> That's the whole point of share buybacks - it's a way to transfer value to shareholders that definitely isn't considered income. I thought the point of buybacks was "This company doesn't have growth ideas--invest elsewhere"

onlyrealcuzzo 4y ago
Not unless you think every company that returns money to shareholders is out of ideas - at which point - if you're never going to get money back, why invest in the first place?
- InitialLastName 4y ago
  > if you're never going to get money back, why invest in the first place? That's a question for tomorrow's (hopefully larger) bag-holders, not today's.
RC_ITR 4y ago
Believe it or not, the S&P 500 returns something like 90%+ of net income to shareholders. That’s because net income is after R&D spend etc. is accounted for. The argument for retaining net income is that you have future capital expenses that you want to save for (like factories or servers), but that’s an increasingly less pressing need for modern companies. Given the above, companies can choose to return that net income as cash, but then shareholders have to redeploy immediately (and potentially in competitors’ stocks/bonds) OR companies can choose to buy back and burn their own shares, allowing shareholders to defer any decisions and keeping all capital locked up in the company’s stock.
- onlyrealcuzzo 4y ago
  > but that’s an increasingly less pressing need for modern companies. Maybe in the US and EU. We exported factories and manufacturing to the developing world, where CapEx is very important. Considering that China grew at 2x the rate of the US and >3x the rate of the EU - CapEx seems to still be worth considering...
skrtskrt 4y ago
If you have a lot of cash, and ultimately decide you can't deploy it all quickly and efficiently, you can return it to shareholders and avoid losing 9% a year sitting on cash in this inflation environment. Shareholders will be happy and feel taken care of and are more likely to buy your stock next time you have an offering when you are ready to spend that money
- adolph 4y ago
  > If you have a lot of cash, and ultimately decide you can't deploy it all quickly and efficiently Exactly, when you don't know what to do with cash, send it back to the investors in hopes someone else has an idea.
  - skrtskrt 4y ago
    Yeah, just clarifying because what you said was "this company doesn't have growth ideas" which is highly negative, makes it sound like it's a tired dinosaur like AT&T. It can also just be a prudent decision not to flush money down the toilet on expansions or ideas that aren't investable yet because of a misplaced need to show that that company is not "out of ideas"
colinmhayes 4y ago
Right that’s why companies return money to shareholders. The question is “should we do buybacks or dividends?” and companies are now leaning toward buyback because of the tax advantage.
lmm 4y ago
Why you decide to pay out to shareholders rather than keeping the capital is a complex question with many schools of thought. But once you've decided that you're going to pay out the money, doing it as a buyback rather than a dividend is almost entirely about the tax treatment.

by adolph 4y ago

onlyrealcuzzo 4y ago

Not unless you think every company that returns money to shareholders is out of ideas - at which point - if you're never going to get money back, why invest in the first place?

InitialLastName 4y ago
> if you're never going to get money back, why invest in the first place? That's a question for tomorrow's (hopefully larger) bag-holders, not today's.

RC_ITR 4y ago

Believe it or not, the S&P 500 returns something like 90%+ of net income to shareholders. That’s because net income is after R&D spend etc. is accounted for. The argument for retaining net income is that you have future capital expenses that you want to save for (like factories or servers), but that’s an increasingly less pressing need for modern companies. Given the above, companies can choose to return that net income as cash, but then shareholders have to redeploy immediately (and potentially in competitors’ stocks/bonds) OR companies can choose to buy back and burn their own shares, allowing shareholders to defer any decisions and keeping all capital locked up in the company’s stock.

onlyrealcuzzo 4y ago
> but that’s an increasingly less pressing need for modern companies. Maybe in the US and EU. We exported factories and manufacturing to the developing world, where CapEx is very important. Considering that China grew at 2x the rate of the US and >3x the rate of the EU - CapEx seems to still be worth considering...

skrtskrt 4y ago

If you have a lot of cash, and ultimately decide you can't deploy it all quickly and efficiently, you can return it to shareholders and avoid losing 9% a year sitting on cash in this inflation environment. Shareholders will be happy and feel taken care of and are more likely to buy your stock next time you have an offering when you are ready to spend that money

adolph 4y ago
> If you have a lot of cash, and ultimately decide you can't deploy it all quickly and efficiently Exactly, when you don't know what to do with cash, send it back to the investors in hopes someone else has an idea.
- skrtskrt 4y ago
  Yeah, just clarifying because what you said was "this company doesn't have growth ideas" which is highly negative, makes it sound like it's a tired dinosaur like AT&T. It can also just be a prudent decision not to flush money down the toilet on expansions or ideas that aren't investable yet because of a misplaced need to show that that company is not "out of ideas"

colinmhayes 4y ago

Right that’s why companies return money to shareholders. The question is “should we do buybacks or dividends?” and companies are now leaning toward buyback because of the tax advantage.

lmm 4y ago

Why you decide to pay out to shareholders rather than keeping the capital is a complex question with many schools of thought. But once you've decided that you're going to pay out the money, doing it as a buyback rather than a dividend is almost entirely about the tax treatment.