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I remember a very long time ago in college, the prof was talking about stock equity. I asked "Why can't the company buy back stock to increase value ?". He wa

by jmclnx 2y ago

I remember a very long time ago in college, the prof was talking about stock equity. I asked "Why can't the company buy back stock to increase value ?". He was shocked at the question and explained in detail why doing that is bad. It was something about doing that does not create real value. So now we are living in that environment with no care about the impact of buy backs.

gruez 2y ago
>I asked "Why can't the company buy back stock to increase value ?". He was shocked at the question and explained in detail why doing that is bad. It was something about doing that does not create real value. As opposed to paying dividends, which does create value? Buybacks and dividends are both ways of returning money to investors.
finolex1 2y ago
From my understanding, buybacks return money to investors, who are free to plow that cash into something else that "creates value". It's not like Google is the only place that knows how to use that money effectively.
Aurornis 2y ago
> I asked "Why can't the company buy back stock to increase value ?". He was shocked at the question and explained in detail why doing that is bad. It was something about doing that does not create real value. Either you misunderstood your professor or your professor was very misinformed. Stock buybacks and stock dividends are two ways for companies to return value to shareholders. They’re not actually as different as non-Econ people think. They both have the same effect of returning value to shareholders. > So now we are living in that environment with no care about the impact of buy backs. I’m old enough to remember people hand-wringing about stocks that did not have dividends or buybacks. The complaint was that they weren’t sharing profits with shareholders which was somehow evil. Ironic that people are now angry that companies are sharing profits with shareholders. I think the bottom line is that people like to get outraged over anything companies do.
phmqk76 2y ago
Stock buybacks were always an illegal form of stock manipulation, until Reagan decided it was fine, and then it stopped getting prosecuted.
- jmclnx 2y ago
  That explains it, the class was BR (Before Reagan). That guy really planted the seeds of all the issues we are having now.
flappyeagle 2y ago
He was wrong maybe?
tasuki 2y ago
> He was shocked at the question and explained in detail why doing that is bad. I'd love to know! > It was something about doing that does not create real value. No, it does not create value. Neither destroys it. Stock buybacks are net neutral as long as the shares are priced fairly.
greyw 2y ago
Was the prof working in a field related to finance?
pandaman 2y ago
In an ideal world, this is a suboptimal way to pay investors for many reasons (e.g. part of the money spent on the buyback will be taken by market speculators for one) and it's better to pay direct dividends. But in the real world the taxes on dividends are higher than the taxes on the capgains so a buyback transfers more value to the investors than a dividend payment for the same amount.

by jmclnx 2y ago

gruez 2y ago

>I asked "Why can't the company buy back stock to increase value ?". He was shocked at the question and explained in detail why doing that is bad. It was something about doing that does not create real value. As opposed to paying dividends, which does create value? Buybacks and dividends are both ways of returning money to investors.

finolex1 2y ago

From my understanding, buybacks return money to investors, who are free to plow that cash into something else that "creates value". It's not like Google is the only place that knows how to use that money effectively.

Aurornis 2y ago

> I asked "Why can't the company buy back stock to increase value ?". He was shocked at the question and explained in detail why doing that is bad. It was something about doing that does not create real value. Either you misunderstood your professor or your professor was very misinformed. Stock buybacks and stock dividends are two ways for companies to return value to shareholders. They’re not actually as different as non-Econ people think. They both have the same effect of returning value to shareholders. > So now we are living in that environment with no care about the impact of buy backs. I’m old enough to remember people hand-wringing about stocks that did not have dividends or buybacks. The complaint was that they weren’t sharing profits with shareholders which was somehow evil. Ironic that people are now angry that companies are sharing profits with shareholders. I think the bottom line is that people like to get outraged over anything companies do.

phmqk76 2y ago

Stock buybacks were always an illegal form of stock manipulation, until Reagan decided it was fine, and then it stopped getting prosecuted.

jmclnx 2y ago
That explains it, the class was BR (Before Reagan). That guy really planted the seeds of all the issues we are having now.

flappyeagle 2y ago

He was wrong maybe?

tasuki 2y ago

> He was shocked at the question and explained in detail why doing that is bad. I'd love to know! > It was something about doing that does not create real value. No, it does not create value. Neither destroys it. Stock buybacks are net neutral as long as the shares are priced fairly.

greyw 2y ago

Was the prof working in a field related to finance?

pandaman 2y ago

In an ideal world, this is a suboptimal way to pay investors for many reasons (e.g. part of the money spent on the buyback will be taken by market speculators for one) and it's better to pay direct dividends. But in the real world the taxes on dividends are higher than the taxes on the capgains so a buyback transfers more value to the investors than a dividend payment for the same amount.