4 ms·
Good 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 b
by candiddevmike 3y ago
Good 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 agoOn the contrary, stock buybacks depend on price discovery working! They wouldn't move the stock price if it didn't!
- im3w1l 3y agoIt's a way to dodge dividend taxes. It can be also be used to do some light price manipulation to boost executive compensation tied to share price. I don't think it's a huge evil or anything, but that would be the case for it being wrong.
- WalterBright 3y agoYou'll pay the taxes when you sell the stock. There's no dodging going on.
- epolanski 3y agoYes and no. The result of buybacks is that the number of shares drops. E.g. Berkshire's stake in Apple raised from 5.2 to 5.5 % merely as a result of Apple's buybacks. Obviously shareholders benefit from having a larger piece of the cake while not requiring to pay any tax on this operations.
- WalterBright 3y agoThey pay the tax when they sell the appreciated stock.
- dghlsakjg 3y agoTax rates on some dividends is higher. It is absolutely a tax dodge. It depends entirely on whether it is an ordinary or a qualified dividend. This is true in the US, other jurisdictions vary
- WalterBright 3y agoThe tax difference between ordinary or qualified dividends is the same as the tax difference between short and long term gains. It's simply not a tax dodge.
- 3y ago
- dghlsakjg 3y agoThe practice itself is whatever, but the issue is that dividends are taxed differently than capital gains. At the end of the day the investor makes the same pre-tax income with either strategy, but they can face drastically lower tax burdens. In other words, buybacks are a way of paying way less tax.
- chii 3y ago> In other words, buybacks are a way of paying way less tax. Not way less, just choosing _when_ to pay a tax (say, during retirement years instead of working years of one's life). I don't see anything wrong with doing this.
- dghlsakjg 3y agoYou can decide to hold long enough for the rate to go from short term to long term capital gains, which is something you can’t do with an unqualified dividend. There is also a limit to the amount of unqualified dividends you can offset with losses, which isn’t true for capital gains.