5 ms·

It's stock manipulation, we just chose not to see it as such. Just like alcohol is objectively a hard drug but we just chose not to categorize it as such.

deleted 3y ago
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pjc50 3y ago
Why is company X buying its own stock on the open market "manipulation" rather than any other purchaser?
- jsiepkes 3y ago
  Because you have inside knowledge and you are altering the stock price.
  - koolba 3y ago
    The company is in charge of itself. Everything it does alters the price. Bought back shares strictly increase the price for existing shareholders as it takes them off the market. The entire concept is mainly due to stupidity in tax law that ends up double taxing direct dividends.
  - chongli 3y ago
    Stock buybacks are heavily regulated. They need to be tracked and publicly reported and the plans for buybacks need to be announced by the company ahead of time.
  - jomohke 3y ago
    Note that buybacks must be announced beforehand by the company, so everyone selling their shares has the same knowledge.
- Drakim 3y ago
  Why is me buying my own book to bring it to the best seller list any different than any other purchaser? Stocks are supposed to be a share of ownership in a company, and the price goes up and down because being an owner of a company goes up and down in desirability, based on how well the company is doing. Just like with buying your own book, buying your own stock artificially increases the desirability.
  - bvaldivielso 3y ago
    This is a misunderstanding of what stock buybacks are. Companies do not buy their stock from themselves. They buy the stock from participants in the market. Following your example, it'd be like the author of a book buying the book they wrote from someone else. If the author chooses to pay someone else 1000$ for their book, they can, but they will be wasting money. A company doing a stock buyback is trading off their own capital (they have to spend it, it's not an infinite money glitch where they buy it from themselves) to get back shares of the company itself at the then-market-price. The market chooses whether that's a good trade. It may not
  - pas 3y ago
    that's an argument for why best seller lists are stupid. companies can create new stock anytime out of thin air, and that decreases the price. why can't they do the opposite? some owners of the company decide to buy stocks from the others, thus consolidating ownership. that's what stock buyback is. note, the argument for taxing buybacks is completely different, and valid. (and it might make sense, it might not, it depends on the circumstances. externalities tax (pollution, tax on induced traffic, etc), LVT (land value tax) and wealth tax would be much better, than taxing transactions.)
    - jmholla 3y ago
      > companies can create new stock anytime out of thin air, and that decreases the price. why can't they do the opposite? So at any point, a company can devalue existing shares that people have already purchased? That also sounds like a problem.
- Retric 3y ago
  Because it’s independent of other price signaling mechanisms. The company doesn’t buy the stock because it thinks that stock is a good investment, it does so because of how it influences future prices. Ignoring inflation if a company issues the same inflation adjusted dividend forever say 1% at current prices. In theory the stock should stay roughly the same over the next hundred or thousand years. However, with a buyback the stock would increase constantly forever with endless stock splits. The second option is great for long term owners in terms of taxes, but it’s also manipulation of the stock price.
  - davrosthedalek 3y ago
    No, it buys it /because it has money to spare/. Having the money to spare makes it a good investment.
    - Retric 3y ago
      Companies can have net profits and be terrible investments. The exact same company can be a great investment at 10$, and a terrible investment at 10,000$. You can’t separate stock price from if something is a good investment or not. The example I gave was low risk 1% dividend, that’s not a stock I would want to own. Net result the company, which has inside information, should expect the price to correct ie fall at some point and thus be a poor investment until that point. That doesn’t prevent them from buying it because the goal isn’t a positive ROI.
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wmil 3y ago
If you're going to stretch the difference that much the why not go all out? CEOs are constantly attempting to manipulate the stock price by trying their best to do a good job.
gpderetta 3y ago
Is a company issuing its own stock (i.e. selling) also market manipulation? It brings the price down. Buyback is the reverse operation. The difference from actual price manipulation, is that the price change in issues and buybacks is a permanent effect of the material change of the number of outstanding shares, not a fledging effect of the change in trade volume, i.e. the intrinsic value of the stock goes up or down. edit: of course buybacks, like dividends, decrease the value of a company, and issuing stock increase it, so it is not clear cut.

deleted 3y ago

[deleted]

pjc50 3y ago

Why is company X buying its own stock on the open market "manipulation" rather than any other purchaser?

jsiepkes 3y ago
Because you have inside knowledge and you are altering the stock price.
- koolba 3y ago
  The company is in charge of itself. Everything it does alters the price. Bought back shares strictly increase the price for existing shareholders as it takes them off the market. The entire concept is mainly due to stupidity in tax law that ends up double taxing direct dividends.
- chongli 3y ago
  Stock buybacks are heavily regulated. They need to be tracked and publicly reported and the plans for buybacks need to be announced by the company ahead of time.
- jomohke 3y ago
  Note that buybacks must be announced beforehand by the company, so everyone selling their shares has the same knowledge.
Drakim 3y ago
Why is me buying my own book to bring it to the best seller list any different than any other purchaser? Stocks are supposed to be a share of ownership in a company, and the price goes up and down because being an owner of a company goes up and down in desirability, based on how well the company is doing. Just like with buying your own book, buying your own stock artificially increases the desirability.
- bvaldivielso 3y ago
  This is a misunderstanding of what stock buybacks are. Companies do not buy their stock from themselves. They buy the stock from participants in the market. Following your example, it'd be like the author of a book buying the book they wrote from someone else. If the author chooses to pay someone else 1000$ for their book, they can, but they will be wasting money. A company doing a stock buyback is trading off their own capital (they have to spend it, it's not an infinite money glitch where they buy it from themselves) to get back shares of the company itself at the then-market-price. The market chooses whether that's a good trade. It may not
- pas 3y ago
  that's an argument for why best seller lists are stupid. companies can create new stock anytime out of thin air, and that decreases the price. why can't they do the opposite? some owners of the company decide to buy stocks from the others, thus consolidating ownership. that's what stock buyback is. note, the argument for taxing buybacks is completely different, and valid. (and it might make sense, it might not, it depends on the circumstances. externalities tax (pollution, tax on induced traffic, etc), LVT (land value tax) and wealth tax would be much better, than taxing transactions.)
  - jmholla 3y ago
    > companies can create new stock anytime out of thin air, and that decreases the price. why can't they do the opposite? So at any point, a company can devalue existing shares that people have already purchased? That also sounds like a problem.
Retric 3y ago
Because it’s independent of other price signaling mechanisms. The company doesn’t buy the stock because it thinks that stock is a good investment, it does so because of how it influences future prices. Ignoring inflation if a company issues the same inflation adjusted dividend forever say 1% at current prices. In theory the stock should stay roughly the same over the next hundred or thousand years. However, with a buyback the stock would increase constantly forever with endless stock splits. The second option is great for long term owners in terms of taxes, but it’s also manipulation of the stock price.
- davrosthedalek 3y ago
  No, it buys it /because it has money to spare/. Having the money to spare makes it a good investment.
  - Retric 3y ago
    Companies can have net profits and be terrible investments. The exact same company can be a great investment at 10$, and a terrible investment at 10,000$. You can’t separate stock price from if something is a good investment or not. The example I gave was low risk 1% dividend, that’s not a stock I would want to own. Net result the company, which has inside information, should expect the price to correct ie fall at some point and thus be a poor investment until that point. That doesn’t prevent them from buying it because the goal isn’t a positive ROI.

deleted 3y ago

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wmil 3y ago

If you're going to stretch the difference that much the why not go all out? CEOs are constantly attempting to manipulate the stock price by trying their best to do a good job.

gpderetta 3y ago

Is a company issuing its own stock (i.e. selling) also market manipulation? It brings the price down. Buyback is the reverse operation. The difference from actual price manipulation, is that the price change in issues and buybacks is a permanent effect of the material change of the number of outstanding shares, not a fledging effect of the change in trade volume, i.e. the intrinsic value of the stock goes up or down. edit: of course buybacks, like dividends, decrease the value of a company, and issuing stock increase it, so it is not clear cut.