5 ms·
> buybacks raise the stock price and those gains aren't taxable until you sell They temporarily raise the stock price for the people who are the counterparties
by mullingitover 1y ago
> buybacks raise the stock price and those gains aren't taxable until you sell
They temporarily raise the stock price for the people who are the counterparties to the stock purchase, but isn't that also creating a taxable event for them?
Once the buyback is done, what's keeping that share price from sliding right back down to earth? The shareholders who support the company and hold watch a group who bet against the company by selling shares reap a profit, in a tax advantaged way, while their own dividends are effectively stolen. The buybacks are actually a crap deal for anyone who is a responsible buy and hold investor.
- missedthecue 1y agoThe dividends aren't stolen. A company with 1m shares outstanding buys back 100k of them. Now there are 900k shares outstanding. All long term shareholders who support the company own an extra 10% of the firm with nothing out of pocket. Imagine steady buybacks at reasonable prices over a long period of time... this has an incredible effect. Warren Buffett bought a couple percent of American Express, and now owns 22% of the company despite not buying a share in decades. It really becomes apparent over time. American Express just carefully repurchased shares over the years and Buffett's stake became greater and greater.
- chronia739 1y ago> All long term shareholders who support the company own an extra 10% of the firm with nothing out of pocket. They own an extra 11%. Not 10%. 1/100 versus 1/90
- Waterluvian 1y agoI hate how fractions work this way. We need to call up the math people and ask them to change it.
- __turbobrew__ 1y agoCan you tell them to get rid of compounding interest while they are at it?
- Waterluvian 1y agoSure. I’ll add it to the list. I’m not sure if this is basically the same or just related to the first item, but I’m also going to make them also fix the bug where taking away 1/4 then adding 1/3 returns you to the same amount.
- jjmarr 1y agoDividends create a taxable event for everyone that owns the stock. Buybacks only create a taxable event for the shareholders that wish to sell. And the share price doesn't slide down because there are now less shares on the open market. Theoretically the market capitalization decreases by the amount of money spent on the buyback. Also, if you issue a dividend the market expects that dividend to be ongoing, hell or high water. Share buybacks do not have that social expectation, so the "temporary" nature of them is an asset for companies that don't want to go from a growth stock to an income stock.
- unyttigfjelltol 1y ago> Once the buyback is done, what's keeping that share price from sliding right back down to earth? The plan really seems for the buyback never to be done. Or only in case of economy-wide disruption when there is something to blame— a kind of reverse-Buffet. In fact , adding more punch to the bowl is a key advantage over the legacy tender offer process— tenders directly compete for shares for just a little while. Buybacks, while they have limits, are much more persistent and flexible. Perhaps it was some historical accident that when the SEC made reacquiring shares easier, everyone started doing more of it … but at some point the explanations of efficient capital allocation just become too much.