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Companies should buy back their stock if their stock is undervalued. This anti stock buyback meme is silly. It’s like people who are anti shorting stock. Compa

by erentz 1y ago

Companies should buy back their stock if their stock is undervalued. This anti stock buyback meme is silly. It’s like people who are anti shorting stock. Companies list on the stock exchange in order to sell their own stock to raise capital. If they have excess capital, absolutely they should be able to buy back their stock. And buy other companies stock if they see it as undervalued also.

piva00 1y ago
It's not silly, it's a terrible incentive for companies flush with cash and paying bonuses to their executives in stocks, it becomes very easy to manipulate the stock price with stock buybacks for a larger bonus while letting the company flailing with underinvestment (or simply missed investments). A great case to see the absurdity of it is Intel, doing stock buybacks for almost a decade to push its stock price up while flailing around and losing its edge, if it was paying high dividends while flailing around then major shareholders would be asking why the fuck would they be paying dividends while the business is losing competitiveness but by doing stock buybacks it kept investors "happy" so they could jump ship and let the company fail on its own. Stock buybacks have perverse incentives, everyone responsible for keeping the company in check gets a fat paycheck from buybacks: executives, major investors, etc., all financed by sucking the coffers dry. The buybacks at Intel just made the company as a whole lose money, they bought back stocks when they were high and it only dipped since then (10y window).
- erentz 1y ago
  The shareholders got what they wanted with Intel. If it was the wrong decision for Intel doesn’t mean it’s the wrong decision for everyone and should be banned. The idea that the stock market can only be used to flow shares in one direction has no merit. If you want to regulate executive compensation do that with direct clear regulation on executive compensation, not via some indirect rule change on the stock market.
  - piva00 1y ago
    Stock buybacks are the indirect rule, it wasn't even allowed for most of the existence of stock markets, it's the odd one out which created perverse incentives. It's not about regulating executive compensation, it's to close a gap that was opened and only led to poorer decision making at the executive/board level, there's no advantage to the company. It's a stupid instrument with no reason to exist except to return money to shareholders in a way they can avoid taxation events.

by erentz 1y ago

piva00 1y ago

It's not silly, it's a terrible incentive for companies flush with cash and paying bonuses to their executives in stocks, it becomes very easy to manipulate the stock price with stock buybacks for a larger bonus while letting the company flailing with underinvestment (or simply missed investments). A great case to see the absurdity of it is Intel, doing stock buybacks for almost a decade to push its stock price up while flailing around and losing its edge, if it was paying high dividends while flailing around then major shareholders would be asking why the fuck would they be paying dividends while the business is losing competitiveness but by doing stock buybacks it kept investors "happy" so they could jump ship and let the company fail on its own. Stock buybacks have perverse incentives, everyone responsible for keeping the company in check gets a fat paycheck from buybacks: executives, major investors, etc., all financed by sucking the coffers dry. The buybacks at Intel just made the company as a whole lose money, they bought back stocks when they were high and it only dipped since then (10y window).

erentz 1y ago
The shareholders got what they wanted with Intel. If it was the wrong decision for Intel doesn’t mean it’s the wrong decision for everyone and should be banned. The idea that the stock market can only be used to flow shares in one direction has no merit. If you want to regulate executive compensation do that with direct clear regulation on executive compensation, not via some indirect rule change on the stock market.
- piva00 1y ago
  Stock buybacks are the indirect rule, it wasn't even allowed for most of the existence of stock markets, it's the odd one out which created perverse incentives. It's not about regulating executive compensation, it's to close a gap that was opened and only led to poorer decision making at the executive/board level, there's no advantage to the company. It's a stupid instrument with no reason to exist except to return money to shareholders in a way they can avoid taxation events.