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Somebody correct me if I'm wrong. I always thought of "stock buybacks" as a form of "debt payment". Stocks are created by companies out of thin air, as a tech

Somebody correct me if I'm wrong. I always thought of "stock buybacks" as a form of "debt payment". Stocks are created by companies out of thin air, as a tech worker I am (partially) paid in stocks. Those stocks aren't purchased by my company on the open market, they are manifested -- diluting shareholder stock. Buybacks put a payment on that "loan". I doubt people would be so up in arms about companies paying off their debt, even prematurely. The number I'm more interested in is total stock buybacks / total stocks issued, which of course is never reported. Am I wrong here?

huntertwo 3y ago
Yes you’re wrong - it’s literally not paying back debt. It’s an attempt to appease stockholders because their actual financials can’t keep up, thus reducing the price of the stock, thus reducing the compensation packages of the executives and wealth of the board, who is also elected by shareholders.
- vitiral 3y ago
  I mean I get that argument too. But is what I said wrong? Isn't stock being continually issued, diluting the value over time? If buybacks were _never_ done, wouldn't it keep getting diluted forever? Edit: for instance, if Google has 200,000 employees and is granting an average of $50,000 stock per year, that is $10 billion. So id be okay with buybacks of that size. The actual buybacks are much bigger if memory serves, so that seems like manipulation like you're saying
  - spicyusername 3y ago
    One thing that bothers me about the current economy is that most tech workers are are paid in stock and most Americans are required to invest to retire. This is basically a net fiscal transfer from regular Americans to tech workers, since tech stocks are typically the default investment when retirement is more than a decade away, artificially raising the price of tech stocks. Tech workers sell now while the price is artificially high and everyone else is left gambling later after all the tech workers have cashed out.
justin66 3y ago
> I always thought of "stock buybacks" as a form of "debt payment". That’s obviously wrong. What follows will be wrong. You’re welcome.
ourmandave 3y ago
Not correcting you, but Investopedia has a f-ckton of articles on the basics of stocks and buy backs. Stock Buybacks: Why Do Companies Buy Back Shares? https://www.investopedia.com/ask/answers/042015/why-would-company-buyback-its-own-shares.asp https://www.investopedia.com/ask/answers/042015/why-would-co... KEY TAKEAWAYS Companies do buybacks for various reasons, including company consolidation, equity value increase, and looking more financially attractive. The downside to buybacks is they are typically financed with debt, which can strain cash flow. Stock buybacks can have a mildly positive effect on the economy overall. Search for 'stock buy back' https://www.investopedia.com/search?q=stock+buy+back https://www.investopedia.com/search?q=stock+buy+back
- vitiral 3y ago
  So the article seems complete, but literally doesn't even mention continuous dilution due to employee compensation or related issues. It only mentions "issuing stock" like it's a single event instead of a continuous process.
pjc50 3y ago
Equity is specifically NOT a debt, but you're right that it's just the mirror image of stock issuance. See my other comment about it being a means of returning money to investors like dividends.

huntertwo 3y ago

Yes you’re wrong - it’s literally not paying back debt. It’s an attempt to appease stockholders because their actual financials can’t keep up, thus reducing the price of the stock, thus reducing the compensation packages of the executives and wealth of the board, who is also elected by shareholders.

vitiral 3y ago
I mean I get that argument too. But is what I said wrong? Isn't stock being continually issued, diluting the value over time? If buybacks were _never_ done, wouldn't it keep getting diluted forever? Edit: for instance, if Google has 200,000 employees and is granting an average of $50,000 stock per year, that is $10 billion. So id be okay with buybacks of that size. The actual buybacks are much bigger if memory serves, so that seems like manipulation like you're saying
- spicyusername 3y ago
  One thing that bothers me about the current economy is that most tech workers are are paid in stock and most Americans are required to invest to retire. This is basically a net fiscal transfer from regular Americans to tech workers, since tech stocks are typically the default investment when retirement is more than a decade away, artificially raising the price of tech stocks. Tech workers sell now while the price is artificially high and everyone else is left gambling later after all the tech workers have cashed out.

justin66 3y ago

> I always thought of "stock buybacks" as a form of "debt payment". That’s obviously wrong. What follows will be wrong. You’re welcome.

ourmandave 3y ago

Not correcting you, but Investopedia has a f-ckton of articles on the basics of stocks and buy backs. Stock Buybacks: Why Do Companies Buy Back Shares? https://www.investopedia.com/ask/answers/042015/why-would-company-buyback-its-own-shares.asp https://www.investopedia.com/ask/answers/042015/why-would-co... KEY TAKEAWAYS Companies do buybacks for various reasons, including company consolidation, equity value increase, and looking more financially attractive. The downside to buybacks is they are typically financed with debt, which can strain cash flow. Stock buybacks can have a mildly positive effect on the economy overall. Search for 'stock buy back' https://www.investopedia.com/search?q=stock+buy+back https://www.investopedia.com/search?q=stock+buy+back

vitiral 3y ago
So the article seems complete, but literally doesn't even mention continuous dilution due to employee compensation or related issues. It only mentions "issuing stock" like it's a single event instead of a continuous process.

pjc50 3y ago

Equity is specifically NOT a debt, but you're right that it's just the mirror image of stock issuance. See my other comment about it being a means of returning money to investors like dividends.