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> And yes, stock buybacks are a form of market manipulation. Stock buybacks are not different from dividends, except for tax reasons.

by nabla9 3y ago

gmm1990 3y ago
they reduce the supply of stock available, that is a difference. If its material is a different question, I'd argue it is but don't have data to back that up. If a company has to buy back 10 billion in stock over a fixed time period market participates should be able to drive up the stock price knowing they will have a buyer (the company) to sell to later.
- nabla9 3y ago
  Lets go this trough: Before: I own 100 stocks worth $100 each. =$10000. Option 1: 2% dividend. I have 100 stocks worth $98 each + $200 =$10000. Stock value drops immediately. Option 2: equal sized buyback: I have 100 stocks worth of $100 each = $1000. Buyback does not increase the stock value immediately. Company pays $200 for those who sell, but owns the stocks (or shareholders 'own them') so it's net neutral. This reduces the number of shares outstanding, thereby inflating (positive) future earnings per share. This typically leads to the value increasing.
maxerickson 3y ago
Being taxed differently is pretty significant. Kind of weird to impose a tax and then also have an easy way around it.
- nabla9 3y ago
  It just delays taxation. It's more important for small investors in the US, because in the US even index funds must pay tax for dividends. Here in EU we can buy US index funds not available for US citizens where dividends are reinvested without tax. For us it does not matter that much.
  - maxerickson 3y ago
    In a hand wavy theoretical sense you can maybe say it "just" delays taxation, but shareholders aren't going to go out of their way to ensure that they sell at a price that incurs the equivalent taxation. And then a tax that sort of directly relates back to the cashflow of the company is not equivalent to a tax that is based on the capital gains that shareholders end up with.

> And yes, stock buybacks are a form of market manipulation. Stock buybacks are not different from dividends, except for tax reasons.

by nabla9 3y ago

> And yes, stock buybacks are a form of market manipulation. Stock buybacks are not different from dividends, except for tax reasons.

gmm1990 3y ago

they reduce the supply of stock available, that is a difference. If its material is a different question, I'd argue it is but don't have data to back that up. If a company has to buy back 10 billion in stock over a fixed time period market participates should be able to drive up the stock price knowing they will have a buyer (the company) to sell to later.

nabla9 3y ago
Lets go this trough: Before: I own 100 stocks worth $100 each. =$10000. Option 1: 2% dividend. I have 100 stocks worth $98 each + $200 =$10000. Stock value drops immediately. Option 2: equal sized buyback: I have 100 stocks worth of $100 each = $1000. Buyback does not increase the stock value immediately. Company pays $200 for those who sell, but owns the stocks (or shareholders 'own them') so it's net neutral. This reduces the number of shares outstanding, thereby inflating (positive) future earnings per share. This typically leads to the value increasing.

maxerickson 3y ago

Being taxed differently is pretty significant. Kind of weird to impose a tax and then also have an easy way around it.

nabla9 3y ago
It just delays taxation. It's more important for small investors in the US, because in the US even index funds must pay tax for dividends. Here in EU we can buy US index funds not available for US citizens where dividends are reinvested without tax. For us it does not matter that much.
- maxerickson 3y ago
  In a hand wavy theoretical sense you can maybe say it "just" delays taxation, but shareholders aren't going to go out of their way to ensure that they sell at a price that incurs the equivalent taxation. And then a tax that sort of directly relates back to the cashflow of the company is not equivalent to a tax that is based on the capital gains that shareholders end up with.