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Ultimately this is about capital allocation and rates of return. Capital flows into the places where it can be best put to work. If you wish for your investment

by fra 3y ago

Ultimately this is about capital allocation and rates of return. Capital flows into the places where it can be best put to work. If you wish for your investments to yield above inflation, you're a card carrying member of the cult of growth. If Apple decides it will stop growing, it will plow 100% of its profits in share buybacks (I bet op loves those!) and work hard to squeeze costs down. This happens routinely under private equity ownership. It's not as fun as you'd think. The view expressed by the author is naive and shortsighted. Growth is required for society to function. If it doesn't come from Apple, it must come from somewhere else.

Upvoter33 3y ago
I agree it is shortsighted. If Apple doesn't grow, their competitors will, and soon enough they are building better things because they have more resources. But, it is irritating: sometimes you just want people to do a few things well, and not try to grow and grow and grow ...
- ganzuul 3y ago
  https://en.wikipedia.org/wiki/Nokia https://en.wikipedia.org/wiki/Nokia
- manuelmoreale 3y ago
  Just so we clear. I’m talking about Apple as an example. Saying that if Apple doesn’t grow other will is missing the point. I’m saying the entire mindset is a cancer.
colinng 3y ago
The time value of money is always more than inflation. The classic simple example is that if you need food today, the money for food is worth much more today than it is worth a year from now. Therefore to ask someone to surrender money today, they have to give you more money to return it to you next year. This isn’t the same as growth (ie you’re doing a job, but next year they expect you to make 25% more sales, or else…)
- fra 3y ago
  Why would anyone want to give you a return on capital if they are not able to use that capital to growth? The two are intimately linked.
  - jahewson 3y ago
    In theory they could use the capital to inflict a loss on all the other places an investor could park their money. Zero growth but still an incentive to invest!
akira2501 3y ago
> Growth is required for society to function. Yes, but this is the noncompetitive growth of a single industry, which is monopolizing trade and labor. This is actually the opposite of social growth, and it's the reason we have anti monopoly laws.
- fra 3y ago
  No contest here, but that is not the subject of the OP.
piva00 3y ago
Yours is also a very naive and rosy view of the system. > Capital flows into the places where it can be best put to work. It also flows to places which it can return the most to capital owners, not necessarily that means best put to work. Financial markets decouple productivity from value, the cryptocurrency market is not even close to be productive but has massive capital inflows; the housing market collapse of 2008 was not money being put where it could be best worked. Money flows to where returns are expected, that's about it, the more decoupled that returns became from actual productivity and improvements to society (and mostly by the hyperfinancialisation of economies since the 80s) the less that statement is true.
- fra 3y ago
  We're talking about the growth of companies like Apple here, not the growth of the NASDAQ Index.
kerkeslager 3y ago
> If Apple decides it will stop growing, it will plow 100% of its profits in share buybacks (I bet op loves those!) and work hard to squeeze costs down. This happens routinely under private equity ownership. It's not all unicorn and rainbows. This is still just growth (in share price). I would say that the real alternative to growth is dividends. Plenty of grocery store chains are happy to putter along paying a solid quarterly dividend with meager yearly growth.
- fra 3y ago
  Three points: 1. Dividends and share buybacks are the exact same thing, just with a different tax treatment. 2. A share buyback should not in itself produce an increase in share price. You decrease the $ of shares on the market by the exact amount you decrease the $ on your balance sheet. 3. An increase in share price is not business growth.
  - kerkeslager 3y ago
    > Dividends and share buybacks are the exact same thing, just with a different tax treatment. That depends on the percentage of shares that are liquid. Shares can be locked up in options or other contracts so a buyback disproportionately affects the liquid capitalization rather than the fully diluted capitalization--a pretty significant difference from dividends. > A share buyback should not in itself produce an increase in share price. You decrease the $ of shares on the market by the exact amount you decrease the $ on your balance sheet. Decreasing supply while demand remains constant would in fact produce an increase in share price. Of course, demand doesn't remain constant, so it's not a guaranteed increase, but the general principle of supply and demand does apply here. > An increase in share price is not business growth. Agreed, but that's sort of the problem--it's supposed to be. One of the flaws of our stock market is that share price is so manipulable in so many ways that it's divorced from the value the company actually creates.
manuelmoreale 3y ago
> If Apple decides it will stop growing, it will plow 100% of its profits in share buybacks (I bet op loves those!) I don’t even know what those are. I don’t invest, I know nothing about that world. My email is public on my site if you want to discuss my naive and shortsighted views.

by fra 3y ago

Upvoter33 3y ago

I agree it is shortsighted. If Apple doesn't grow, their competitors will, and soon enough they are building better things because they have more resources. But, it is irritating: sometimes you just want people to do a few things well, and not try to grow and grow and grow ...

ganzuul 3y ago
https://en.wikipedia.org/wiki/Nokia https://en.wikipedia.org/wiki/Nokia
manuelmoreale 3y ago
Just so we clear. I’m talking about Apple as an example. Saying that if Apple doesn’t grow other will is missing the point. I’m saying the entire mindset is a cancer.

colinng 3y ago

The time value of money is always more than inflation. The classic simple example is that if you need food today, the money for food is worth much more today than it is worth a year from now. Therefore to ask someone to surrender money today, they have to give you more money to return it to you next year. This isn’t the same as growth (ie you’re doing a job, but next year they expect you to make 25% more sales, or else…)

fra 3y ago
Why would anyone want to give you a return on capital if they are not able to use that capital to growth? The two are intimately linked.
- jahewson 3y ago
  In theory they could use the capital to inflict a loss on all the other places an investor could park their money. Zero growth but still an incentive to invest!

akira2501 3y ago

> Growth is required for society to function. Yes, but this is the noncompetitive growth of a single industry, which is monopolizing trade and labor. This is actually the opposite of social growth, and it's the reason we have anti monopoly laws.

fra 3y ago
No contest here, but that is not the subject of the OP.

piva00 3y ago

Yours is also a very naive and rosy view of the system. > Capital flows into the places where it can be best put to work. It also flows to places which it can return the most to capital owners, not necessarily that means best put to work. Financial markets decouple productivity from value, the cryptocurrency market is not even close to be productive but has massive capital inflows; the housing market collapse of 2008 was not money being put where it could be best worked. Money flows to where returns are expected, that's about it, the more decoupled that returns became from actual productivity and improvements to society (and mostly by the hyperfinancialisation of economies since the 80s) the less that statement is true.

fra 3y ago
We're talking about the growth of companies like Apple here, not the growth of the NASDAQ Index.

kerkeslager 3y ago

> If Apple decides it will stop growing, it will plow 100% of its profits in share buybacks (I bet op loves those!) and work hard to squeeze costs down. This happens routinely under private equity ownership. It's not all unicorn and rainbows. This is still just growth (in share price). I would say that the real alternative to growth is dividends. Plenty of grocery store chains are happy to putter along paying a solid quarterly dividend with meager yearly growth.

fra 3y ago
Three points: 1. Dividends and share buybacks are the exact same thing, just with a different tax treatment. 2. A share buyback should not in itself produce an increase in share price. You decrease the $ of shares on the market by the exact amount you decrease the $ on your balance sheet. 3. An increase in share price is not business growth.
- kerkeslager 3y ago
  > Dividends and share buybacks are the exact same thing, just with a different tax treatment. That depends on the percentage of shares that are liquid. Shares can be locked up in options or other contracts so a buyback disproportionately affects the liquid capitalization rather than the fully diluted capitalization--a pretty significant difference from dividends. > A share buyback should not in itself produce an increase in share price. You decrease the $ of shares on the market by the exact amount you decrease the $ on your balance sheet. Decreasing supply while demand remains constant would in fact produce an increase in share price. Of course, demand doesn't remain constant, so it's not a guaranteed increase, but the general principle of supply and demand does apply here. > An increase in share price is not business growth. Agreed, but that's sort of the problem--it's supposed to be. One of the flaws of our stock market is that share price is so manipulable in so many ways that it's divorced from the value the company actually creates.

manuelmoreale 3y ago

> If Apple decides it will stop growing, it will plow 100% of its profits in share buybacks (I bet op loves those!) I don’t even know what those are. I don’t invest, I know nothing about that world. My email is public on my site if you want to discuss my naive and shortsighted views.