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Personally I think that buybacks should be illegal like they were before the 1980s. Companies should focus more on their nominal products/services and spend le

Personally I think that buybacks should be illegal like they were before the 1980s. Companies should focus more on their nominal products/services and spend less time playing games with money.

tliltocatl 2y ago
But if buybacks are illegal and dividends are highly discouraged by taxation, what's the purpose of the stocks at all? How are stockholders supposed to get paid back if there is no flow of money from the companies? And no, "sell stocks for higher price to a greater fool^W^W^W another investor" cannot work on global level because if the company doesn't distribute it's profits to stockholders, stock price is purely speculative so it essentially becomes a Ponzi even if the is real value production getting done, because the value production doesn't find it's way back to the investors.
- Mistletoe 2y ago
  Well we used to have this thing called a dividend…
- cherryteastain 2y ago
  > stock price is purely speculative Already is. There's a reason why many quant finance books model stock prices as martingales/random walks.
- rybosworld 2y ago
  > what's the purpose of the stocks at all? Dividends > dividends are highly discouraged by taxation This is only true today because buybacks aren't taxed Buybacks are ultimately a way of saying "we don't have a better way to spend this money." Consider that, in a world without buybacks, execs have two choices. One is to pay dividends, and eat the tax implications. The other is to find productive ways to spend the money to increase the company's earnings. The taxation of dividends strongly motivates companies to innovate. Buybacks weaken that motivator significantly, because there's no tax implication. It's financial engineering and not a productive use of money. Buybacks are also a pretty neat way for insiders to enrich themselves at the expense of shareholders. Example: Insiders schedule a sell of their shares to occur right after announcing a buyback plan.
  - woooooo 2y ago
    Worth noting also that dividends aren't uniquely taxed. Worst case, they're taxed the same as income, but they can also be capital gains which are taxed at a lower rate. So any talk of incentives should include a justification of passive investment being more valuable than work for income, if someone is asking for favorable tax treatment.
    - tliltocatl 2y ago
      Wasn't aware of that. Yes, I've no clue what I'm talking about. But if buyback gains are also taxed as income when cashing out, what is the advantage of buybacks then?
      - loeg 2y ago
        You can defer selling capital gains for decades in a buy-and-hold portfolio, while your portfolio continues to grow. Dividends are always taxed in the current tax year. One benefit here for investors is that you can defer taking capital gains until years when you are in a lower tax bracket (e.g. retired), which you cannot do with dividends. (The US capital gains tax rate is progressive, if with fewer buckets than income. There's a 0% bucket, a 15% bucket, an 18.8% bucket, and 23.8% bucket.)
    - ac29 2y ago
      Qualified dividends are not capital gains, even if they are taxed at the same rate
      - loeg 2y ago
        GP is clearly just talking about them being taxed at the same rate.
        ac29 2y ago
        My point was that GP's assertion that "Worth noting also that dividends aren't uniquely taxed" is wrong - they are uniquely and specifically taxed, the rate just happens to currently be the same as capital gains rates.
refurb 2y ago
Saying buybacks were illegal is not accurate. What changed in the 80’s is that a safe harbor was created. Before that companies were at risk of being charged with market manipulation - there were no clear rules on what was market manipulation and what wasn’t. The safe harbor rule 10b-18 simply laid out requirements for buybacks fell into a “safe harbor”, presumed to not be market manipulation. But companies could still do them before that, but it was more risky.

Personally I think that buybacks should be illegal like they were before the 1980s. Companies should focus more on their nominal products/services and spend less time playing games with money.

tliltocatl 2y ago

But if buybacks are illegal and dividends are highly discouraged by taxation, what's the purpose of the stocks at all? How are stockholders supposed to get paid back if there is no flow of money from the companies? And no, "sell stocks for higher price to a greater fool^W^W^W another investor" cannot work on global level because if the company doesn't distribute it's profits to stockholders, stock price is purely speculative so it essentially becomes a Ponzi even if the is real value production getting done, because the value production doesn't find it's way back to the investors.

Mistletoe 2y ago
Well we used to have this thing called a dividend…
cherryteastain 2y ago
> stock price is purely speculative Already is. There's a reason why many quant finance books model stock prices as martingales/random walks.
rybosworld 2y ago
> what's the purpose of the stocks at all? Dividends > dividends are highly discouraged by taxation This is only true today because buybacks aren't taxed Buybacks are ultimately a way of saying "we don't have a better way to spend this money." Consider that, in a world without buybacks, execs have two choices. One is to pay dividends, and eat the tax implications. The other is to find productive ways to spend the money to increase the company's earnings. The taxation of dividends strongly motivates companies to innovate. Buybacks weaken that motivator significantly, because there's no tax implication. It's financial engineering and not a productive use of money. Buybacks are also a pretty neat way for insiders to enrich themselves at the expense of shareholders. Example: Insiders schedule a sell of their shares to occur right after announcing a buyback plan.
- woooooo 2y ago
  Worth noting also that dividends aren't uniquely taxed. Worst case, they're taxed the same as income, but they can also be capital gains which are taxed at a lower rate. So any talk of incentives should include a justification of passive investment being more valuable than work for income, if someone is asking for favorable tax treatment.
  - tliltocatl 2y ago
    Wasn't aware of that. Yes, I've no clue what I'm talking about. But if buyback gains are also taxed as income when cashing out, what is the advantage of buybacks then?
    - loeg 2y ago
      You can defer selling capital gains for decades in a buy-and-hold portfolio, while your portfolio continues to grow. Dividends are always taxed in the current tax year. One benefit here for investors is that you can defer taking capital gains until years when you are in a lower tax bracket (e.g. retired), which you cannot do with dividends. (The US capital gains tax rate is progressive, if with fewer buckets than income. There's a 0% bucket, a 15% bucket, an 18.8% bucket, and 23.8% bucket.)
  - ac29 2y ago
    Qualified dividends are not capital gains, even if they are taxed at the same rate
    - loeg 2y ago
      GP is clearly just talking about them being taxed at the same rate.
      - ac29 2y ago
        My point was that GP's assertion that "Worth noting also that dividends aren't uniquely taxed" is wrong - they are uniquely and specifically taxed, the rate just happens to currently be the same as capital gains rates.

refurb 2y ago

Saying buybacks were illegal is not accurate. What changed in the 80’s is that a safe harbor was created. Before that companies were at risk of being charged with market manipulation - there were no clear rules on what was market manipulation and what wasn’t. The safe harbor rule 10b-18 simply laid out requirements for buybacks fell into a “safe harbor”, presumed to not be market manipulation. But companies could still do them before that, but it was more risky.