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All 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

All 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 ago
They’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 ago
  The 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 ago
    Some 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 ago
      Returning 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 ago
    More 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 ago
      Invest 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 ago
  If 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 ago
  Presumably, 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 ago
    There 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 ago
      Fair. 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.)

azinman2 3y ago

They’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 ago
The 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 ago
  Some 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 ago
    Returning 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 ago
  More 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 ago
    Invest 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 ago
If 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 ago
Presumably, 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 ago
  There 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 ago
    Fair. 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.)