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Stock buybacks create a steady demand that’s price inelastic. I think one side effect of that is it suppresses natural price discovery. Another part of it is p

Stock buybacks create a steady demand that’s price inelastic. I think one side effect of that is it suppresses natural price discovery. Another part of it is passive investing in indices and etfs cause money to flow disproportionality into the biggest stocks by market capitalization. This is a positive feedback cycle for the largest companies in the index. These stocks may well go higher. But they are also at levels right now where you are unlikely to get a good return on them if you invest long term from here. I would neither invest in them nor go short against them.

gen220 3y ago
Buybacks don’t necessarily “suppress” price discovery, they’re just another mechanism for imputing per-share price, like revenue, margin, etc. If you wish, it’s trivial to filter out the effect of buybacks. Look at market cap over time instead of price over time. Look at market cap divided by revenue over time, instead of market cap divided by share price over time. Buybacks are not always the best use of capital, but with BRK as a key shareholder, you feel that it must make sense in their circumstance. The same money Apple invested in buybacks, its competitors have invested in dubious hiring sprees and unchecked R&D. I wouldn’t add to my apple position, but I wouldn’t consider selling any time soon. The folks at BRK know better than me!
- slashdev 3y ago
  I think you misunderstand me. What I’m saying is that price inelastic demand for the stock through buybacks puts upward pressure on the stock price, no matter the current price, preventing the normal market process of price discovery from working well. This then is amplified by passive investment. I think that’s what makes buybacks so effective. I’m not saying anything about it making it harder to determine the intrinsic value of a stock, which I think is what you’re talking about.

gen220 3y ago

Buybacks don’t necessarily “suppress” price discovery, they’re just another mechanism for imputing per-share price, like revenue, margin, etc. If you wish, it’s trivial to filter out the effect of buybacks. Look at market cap over time instead of price over time. Look at market cap divided by revenue over time, instead of market cap divided by share price over time. Buybacks are not always the best use of capital, but with BRK as a key shareholder, you feel that it must make sense in their circumstance. The same money Apple invested in buybacks, its competitors have invested in dubious hiring sprees and unchecked R&D. I wouldn’t add to my apple position, but I wouldn’t consider selling any time soon. The folks at BRK know better than me!

slashdev 3y ago
I think you misunderstand me. What I’m saying is that price inelastic demand for the stock through buybacks puts upward pressure on the stock price, no matter the current price, preventing the normal market process of price discovery from working well. This then is amplified by passive investment. I think that’s what makes buybacks so effective. I’m not saying anything about it making it harder to determine the intrinsic value of a stock, which I think is what you’re talking about.