How are they good? Companies are killing their inventory / safety / rnd / experienced headcount to do buy backs and in the slightest economy disruption they are forcing us to bail them out. Look at finance, airlines, oil, manufacturing for very recent examples.
That’s why they don’t just hand out dividends. If you want to take money out of the business just sell some shares. Long term capital gains in the US isn’t bad.
Plus dividends are independent from the stupid market valuations. Everyone benefits the same, not just the folks who will sell after the uptick of price
The cost of buybacks is affected by timing, unlike dividends.
Dividends are cleaner and affect the price in well understood ways: you set a date for the elegibility, and if you bought before that you get the dividend, if you buy after you don't.
Stock buybacks are less transparent (you don't buy them all at once).
Yes, it concentrate/centralize power. If you want a new aristocracy, continue buybacks until a share is worth so much, people will start to buy share fractions, with all the shit and overhead that'll bring.
How is that better? With buybacks if I want to reinvest I don't have to pay taxes on them and if I want to realize the gains I can decide when to do that myself (of course seem more like an issue in Europe and with companies which only payout yearly).
Because it encourages longer-term ownership, and gives shareholders a stake in the future cash flows of the business.
Like I said, it's the tax treatment that basically stopped growth companies giving dividends. I think that we should change said tax treatment and also make buybacks illegal but that's a bit more controversial.
In any case, for both G and FB, they'd need to do buybacks anyway because of their employee share programs.
Buybacks have the same effect of encouraging long-term ownership.
Given a certain amount of money, spending it on stock buybacks vs spending it on dividends returns the same amount of money to each HOLDING shareholder.
In one case, they receive a small sum. In the other case, the value of their stock goes up.
They are good for the stock. There is no evidence they are good for the company, its workers, or the economy.
Stock buybacks have destroyed companies like GE and Boeing.
This is very well covered in the book about Boeing - Flying Blind. A bunch of Jack Welch mentees did the same trick, selling the company for parts and buying back the stock - until there was nothing left to sell. It was very "profitable" for a while, though!
It's not a tool for company growth - it's an accounting trick to make the wealthy ultra-wealthy.
There is a reason why buybacks at these levels were illegal (or at least very hard) until the early 80s, but there were multiple pro-big-business "reforms" that took root under Reagan which are now wrecking sensible Capitalism.
> This is very well covered in the book about Boeing - Flying Blind. A bunch of Jack Welch mentees did the same trick, selling the company for parts and buying back the stock - until there was nothing left to sell. It was very "profitable" for a while, though!
Ooh nice, TIL and thanks! I really liked "Lights Out: Pride, Delusion, and the Fall of General Electric" about the failure of GE and was looking for something similar.
On the topic of buybacks and dividends, it's part of the short term quarter-oriented thinking. Spinning off subdivisions and doing stock buybacks and dividends are very popular and look good on the balance sheet in the short term... but if you think about a quarter or two ahead, it's crippling. But it doesn't matter, stock go up, bonus go up, everyone happy for now, kicking the can down the road until it's someone else's problem.
Stock buybacks are good for the economy because they allocate money to where it can be used more efficiently, which is usually not in existing big corporations.
The alternative to stock buybacks is that the corporation make stupid acquisitions and try to integrate them into their processes, thereby killing them.
Shouldn’t the money be used more efficiently for society’s benefit or not concentrated by the share holders? Share holders will only further their own interests and not society’s interests.
How do you accomplish that? Historically "shareholders" as a group have been quite effective (often but obviously not always) have been quite effective at using at their money for society’s benefit.
In fact every society which tried to take all of their money away and eliminate them as a class (more or less violently) has failed economically. Turns out when it works properly free market competition is strongest force for economic and technological progress that has ever existed.
Now that you link stock buybavks to growing salaries, I cannot ignore it anymore.
Stock buybacks only benefit shareholders and companies, not the economie. Trickle down and all that doesn't work, stock buybacks reduce a companies tax burden, especially when leveraged which they often are, do not lead to more investment. And they make the rich even richer.
If I get RSUs quarterly and my company additionally buys back 10% of stock. My post vest RSUs should also be worth 10% more. This is effectively a bonus and my tax obligation would be lower than cash.
In theory (and sometimes/often in reality) it results in more effective allocation of capital. It's not about "trickle down "econonomics"" but about those investors using that money to invest into more productive businesses.
> And salaries rise, primarily, through labour organization and collective bargaining.
No. Supply and demand is and pretty much always was a much stronger force.
Stock buybacks are not “trickle down” economics. It’s returning money to investors who then have to rebalance their portfolios and find something new to invest in. This is what is good for the economy.
I believe the parent commenter's point was exactly this. Giving money to the investor class and expecting it to benefit everyone is the definition of trickle-down economics.
The comparison is leaving it with the company and hoping something good comes out of it. That’s also trickle down economics by that moronic definition.
