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Also GOOGL, MSFT had done a stock buyback to keep their shareprice high to appease investors. I think age of high growth for stock is over.
by abledon 3y ago
Also GOOGL, MSFT had done a stock buyback to keep their shareprice high to appease investors. I think age of high growth for stock is over.
- avrionov 3y agoAll FAANG companies had dedicated money pools for share buybacks. Apple even pays dividends. The common belief is that is a company is doing share buybacks, it doesn't innovate anymore. These buybacks have been taking place for the past 10 years and they are still growing.
- azinman2 3y agoThey’re one of the most tax advantaged way to return money to shareholders. That’s it. I don’t like this method or the need, but the motivation isn’t rooted in lack of innovation etc. Friedman doctorine has become gospel, so this is the result.
- manquer 3y agoThe charge of Lack of innovation is more that they returning money to shareholders instead of funding more r&d (organic/acquisition) not how (dividends/buybacks )
- ghaff 3y agoSome level of R&D is often needed to sustain a company's viability long-term. However, as a shareholder I also expect some share of profits to be returned to me.
- manquer 3y agoReturning the money directly to the shareholder as dividend or buyback is an indication that management cannot find better use for the money, or unwilling to take the risk. Berkshire Hathway never declares dividend or does buybacks either. The profits are returned to you by giving you the choice to sell the shares when you want[1] Google for example could have really invested in Google Fiber or taken a similar capital intensive project instead of returning 100's of billions of dollars. Alternatively could be growing inorganically through acquisitions. The largest acquisition Google has done is only for $12.5B of Motorola in 2011. Only one of top 5 acquisitions is in this decade ( Mandiant) and top 5 combined they spent only $25B Compare that to say Microsoft who are spending $70B on Activision, $10B on OpenAI, also bought Github($8B), Nuance($20B) just in the last 5 years. Google simply doesn't seem to have any ideas on how to spend money. [1] Buybacks give you the same choice as well, but they are not increasing the total value through investments to do so, just reducing the number of shares in circulation.
- jfengel 3y agoMore money for research is not always a good use of capital. You can't solve more problems, or faster, just with cash. Some days it's wisest to wait until you're ready.
- manquer 3y agoInvest in upstream/ downstream businesses or in capital heavy projects, You could acquire also grow inorganically. R&D in the accounting sense is very different from research as we think. Yes there is diminishing returns for spending cash but I don't think these big companies are anywhere close to that being a real problem. In a sibling post I talked about Google's inability to spend, this is also true for old school Blue chip companies like say Oil& Gas, they have had enormous record profits last couple of years and while they have for good reasons not doing lot of new wells[1] they have not not also done much green energy investments either. [1] Financially sound not do so, given the long term prospects of oil are not great, and short term price fluctuations are not good decision basis for 30+ year projects new drilling entails.
- WalterBright 3y agoIf you hold stock for more than a year, the dividends become "qualified dividends" and are taxed at long term capital gains rates. The only practical difference is you pay taxes on the dividends when you receive them, and taxes on the capital gains when you sell. Investors expecting a return on their investments? How awful!
- ghaff 3y agoPresumably, absent tax advantages of buybacks, more companies would pay dividends and bigger dividends. (At the end of the day a, simplistic, way to look at the innate value of a company's stock is the net present value of its future dividend stream.)
- drivebycomment 3y agoThere is an additional difference beyond the tax advantage. With dividends, the market has more expectation of maintaining similar level of dividends, whereas there's generally and currently no similar expectation on companies doing the share buyback to buy similar amounts quarterly. This allows a bit more flexibility on the company. This extra flexibility may or may not be a good thing, but regardless, it is an additional meaningful difference.
- ghaff 3y agoFair. And, historically, companies known for being consistent dividend stocks got hammered if they cut back. Which, as you suggest, may or may not have been a good thing in general. Whereas buybacks haven't really acquired the same level of X% per quarter. (And, in fairness, is inevitably caught up with questions of whether the stock is "fairly" priced.)
- fnordpiglet 3y agoI’ve heard this ever since the Netscape IPO
- candiddevmike 3y agoGood article on the impact of stock buybacks: https://hbr.org/2014/09/profits-without-prosperity https://hbr.org/2014/09/profits-without-prosperity There's a bill in Congress to "add more accountability" to stock buybacks by imposing taxes (https://www.congress.gov/bill/117th-congress/senate-bill/2758 https://www.congress.gov/bill/117th-congress/senate-bill/275...), but it's clear congress has no interest in curtailing this practice unfortunately.
- WalterBright 3y agoWhat's "wrong" with the practice?
- ilyt 3y agoCompany makes money, company puts it into stock buybacks instead of company development and expansion.
- WalterBright 3y agoSometimes that is the best use of the money.
- vkou 3y agoHow is that different from putting it into a dividend? And why would anyone invest in a company that will never pay dividends/do buy-backs?
- candiddevmike 3y agoIt prevents natural price discovery, a key function of a healthy market.
- WalterBright 3y agoI don't see how it prevents natural price discovery.
- twic 3y ago
- WalterBright 3y agoA stock buyback is not much different than a dividend payout. Calling it "appeasement" is kinda ridiculous. Investors invest to get returns.
- remich 3y agoIt is absolutely different because in order to recoup the benefit of a stock buyback you need to sell your holdings. Dividends, by contrast, accrue to those who maintain holdings. Buybacks work very well for executives paid in stock who diversify out of their company stock with suspiciously convenient timing, and speculators.
- WalterBright 3y agoSorry, there's no difference between a $100 stock paying a $10 dividend and doing a buyback which increases the stock price to $110. You can always sell $10 to realize the same cash in your pocket. > and speculators Everybody who invests is a "speculator".
- epolanski 3y agoSpeculation is defined as trying to sell something at higher prices, generally short term. Bitcoin or gold are examples of speculations. Investors on the other hand are not necessarily interested in price fluctuation but owning their share of the cash flow through growth or dividends.
- WalterBright 3y agoInvestors always try to sell at higher prices.
- epolanski 3y agoYou know you can hold a stock forever without having to sell it? I have shares that I own from 17 years with absolutely no intention to sell, they pay me in dividends more in one year than I paid for them almost two decades ago.
- Sparkyte 3y agoIt is better for a business to own its own share for the most part, prevent outside decisions from creeping in.
- rvz 3y ago[flagged]