
S&P 500 Buybacks Now Outpace All R&D Spending in the US - baronmunchausen
https://thesoundingline.com/sp-500-buybacks-now-outpace-all-rd-spending-in-the-us/
======
zebrafish
Read an idea in American Affairs in support of taxing buybacks. The logic goes
that if all companies have a fiduciary duty to shareholders because the market
is the most efficient capital allocator, AND all companies are giving their
cash back to shareholders, THEN it must be true that the market can not figure
out how to efficiently allocate this $1T of capital. Thus, the government
should have “next dibs” for items on the agenda that it knows need capital,
namely infrastructure and healthcare.

Thought that was an interesting take.

Edit: here is the link but it may be behind a paywall.
[https://americanaffairsjournal.org/2018/12/share-buybacks-
an...](https://americanaffairsjournal.org/2018/12/share-buybacks-and-the-
contradictions-of-shareholder-capitalism/)

~~~
rjkennedy98
At the very minimum it should be taxed the same as dividends. Essentially tax
buybacks are a tax loophole for giving money back to the shareholder.

~~~
pc86
What would this look like from a practical standpoint, though? Dividends are a
taxable event because you're giving someone money. In a buyback, the value of
the stock simply goes up, which isn't a taxable event. How do you determine
the cost basis on something like that? If there's a stock buyback over the
course of 6 months, how do you determine which proportion of the price
increase is due to the buyback, as opposed to inflation or normal growth?

~~~
ISL
In a buyback, a shareholder must sell shares back to the company. When they
do, the shareholder's gains are taxed with capital-gains tax.

Furthermore, whenever shareholders sell shares after the buyback, their shares
are generally worth more, so they pay increased capital gains, too.

I don't know which yields more tax revenue in the long run, but buybacks
definitely generate some tax income.

The only time I could see a "buyback" influencing share price without taxation
is if the buyback has a price cap, and every shareholder believes that the
company is worth more, so they don't sell any shares back. This is exceedingly
unlikely unless the company is _very_ thinly traded.

From my perspective, the key difference with a buyback is the winnowing of
shareholders to those who believe more-strongly in the company's future. With
a dividend, every shareholder gets a small amount of cash. With a buyback,
some shareholders get cash for their shares, and every other shareholder gets
a bigger slice of a company that is worth less (total) money.

If the market is efficient (and it isn't, but it can be) then following a
buyback, one would expect the market capitalization of the company to be
smaller, as the company has paid out money. After 6 months, if the market cap
of the company, plus the funds expended in the buyback, is greater than the
inflation-adjusted pre-buyout market-cap, then the company has created
shareholder value through some other mechanism (even if the mechanism is pure
psychology).

~~~
6gvONxR4sf7o
>one would expect the market capitalization of the company to be smaller, as
the company has paid out money

This doesn't make sense to me. If I spend $X to buy a widget worth $X, I've
paid out money, but I haven't net lost anything. I'm worth the same in total.
If the widget is a share in a company, even my own, that shouldn't change the
fact that the net change in total value is zero.

~~~
kgwgk
When a company buys its own shares it’s essentially cancelling them: they
become essentially worthless.

Look at if from a different angle: the ones selling the shares to the company
are the shareholders. In aggregate, the shareholders own the company valued at
$B (market cap) before the buyback, and the company valued at $A plus the cash
paid $X after the buyback. If $A=$B they are creating $X out of thin air.

Even simpler to grasp: you have a business 50/50 with a partner. There is $1m
in the company account, you reach an agreement and he will sell his interest
back to the company for $1mn in cash. You are sole owner now. The company
doesn’t have the cash anymore. How much was the company worth before? How much
is it worth now?

------
cs702
Large US corporations have been buying back their own stock in record amounts,
_while investors have been cashing out of US stocks at a record pace_ , recent
data shows: [https://www.msn.com/en-us/money/markets/investors-bail-on-
st...](https://www.msn.com/en-us/money/markets/investors-bail-on-stock-market-
rally-fleeing-funds-at-record-pace/ar-BBXVrnh) \-- money is not being plowed
back into IPOs, secondary offerings, etc.

 _According to orthodox economic theory_ , large US corporations must be
buying back stock with earned profits and new debt[a] because they don't have
better uses for that money. Rational executives and company boards looking out
mainly for shareholders must have concluded that buying back shares at current
prices is a better use of money than investing, you know, in the business.

Maybe.

 _In reality_ , executives and directors could very well be authorizing stock
buy-backs to keep share prices up so their stock options remain in-the-money
for as long as possible. If that's the case, the buybacks are meant more for
the benefit of executives and directors than for the benefit of the business
or its shareholders.

[a] Corporate debt to GDP is now at an all-time high:
[https://ei.marketwatch.com/Multimedia/2018/11/29/Photos/NS/M...](https://ei.marketwatch.com/Multimedia/2018/11/29/Photos/NS/MW-
GZ344_corpde_20181129133702_NS.jpg)

~~~
Mikeb85
Investors might be cashing out because the stock market is at a high. This is
literally investing 101. Buy low sell high.

~~~
papito
Then why are companies buying back at record highs? Surely they are not dumber
than Joe the Investor on Main Street.

~~~
Mikeb85
Low interest rates as well as high cash levels. The whole point of markets is
to raise cash then pay it off. Not to tank the price and rip off investors.

Also, buying back shares keeps stock prices high, makes each outstanding share
worth more (less dilution), so more value for the remaining owners.

------
rbavocadotree
AQR published a paper on share buybacks last year [0] with the opening
sentence "People seem to forget some of the very basic lessons of financial
economics when it comes to share repurchases".

One of the big things missed by all the articles covering share repurchases,
is that they are increasing at a rate similar to company market cap. That
shouldn't be too surprising. The real story is why is R&D not keeping up?

It's worth a read for a more nuanced view.

[0]
[https://pdfs.semanticscholar.org/dcc3/e0d7288395c2891f1fee19...](https://pdfs.semanticscholar.org/dcc3/e0d7288395c2891f1fee194e67fb7102dfea.pdf)

~~~
mdorazio
I strongly agree that the real story is in why R&D spending is stagnating or
dropping in comparison to earnings. Personally, I think there a number of
contributing factors including less competition from new businesses (new
businesses starts with employees are way down from previous decades),
decreased competition from large competitors (see Disney buying up everyone in
the entertainment industry as an example), regulatory capture, increased risk
aversion in the corporate world, and just the fact that low hanging fruit are
mostly picked at this point so that the next major improvement might require
way more investment than a lot of companies are comfortable with (see the
massive increase in new semiconductor fabs and drug discovery as examples).

------
nabla9
> drowning out real investment.

The conclusion that buybacks are alternative for real investments is wrong.

The aggregate change between R&D and capex versus buybacks and dividends is
not just some arbitrary decision. ROI from R&D and investments is slowing down
for various reasons.

Instead of investing more without reason to do so, companies should give
profits to owners or pay off excess debt.

There is wrong and right way to use buybacks. When company is not overvalued
relative to its earnings, buyback is viable alternative for dividends. Taking
debt to do buybacks or pay dividends is insane.

~~~
jvanderbot
OK. You're probably right. I still hate it. There's not a viable explanation
that doesn't make it seem shortsighted and greedy (personally, and possibly
due to HN filter).

Why is R&D not a good investment suddenly? Shortage of tech workers (blah
blah) ...?

~~~
bob33212
There are a lot of different reasons.

The cynical take is that the time to ROI is too long. If it is going to take
10 years to turn a profit the executives do not want to pull the trigger on
that because they will be out the door in 5 and never get the payments.

Another possibility is that all the low hanging fruit is gone. So the marginal
improvements do not return large financial gains.

~~~
foobarian
Sadly both of the reasons you listed ring true.

------
zxienin
For technology companies, buybacks signal to me that they have dying (or dead)
engineering. It is rather _financial_ engineering at work.

One of the kpi at play here is EPS [1], typically used to evaluate CEO
performances. To me, this was about numerator increasing over a rather static
base. What instead happens, is that denominator is reduced (with buybacks) to
jack up EPS value. It amazes me, that most of run-of-mill (non analyst) folks
simply buy into EPS↑ story.

[1]
[https://www.investopedia.com/terms/e/eps.asp](https://www.investopedia.com/terms/e/eps.asp)

~~~
Redoubts
I can understand this. I know my company has a bug backlog a mile long, and
some real issues we should put substantial time into; but it would rather have
HR put downwards pressure on compensation while pursuing record buybacks. It
gives a sense for what the priorities are.

~~~
frockington1
Well a bug backlog that long isn't going to motivate execs to improve
compensation. If there are too many bugs it might be time to pivot the
business

~~~
Redoubts
Of course I don't mean more money for existing players, but to encourage
strong new hires. But good talent tends to cost money, so...

------
loourr
This is robbery by the management class, and who can blame them.

If I can take on debt at a corporate level and personally enrich myself, by
increasing the value of the stock through buybacks and then selling it, why
wouldn't I?

This is all made a whole lot worse by stock option packages that give managers
equity at major discounts.

I think we'll look back at this as the largest heists in history. Should serve
as a good lesson to central bankers in creating wack incentive schemes (but it
probably won't)

~~~
dcolkitt
I don't exactly understand who you think is being "robbed" here. Shareholders?

Because if that's the case there's little evidence of it. US equity returns
have had one of the best decades in all of history. That certainly does not
support the narrative that American shareholders are being ripped off on a
systematic scale.

~~~
jonny_eh
The economy as a whole. All these companies are putting themselves at risk by
taking on debt to do buybacks. As soon as there's a hiccup, this can lead to a
cascading effect of bankruptcies, leading to a recession or depression.

------
eloff
This supports Peter Theil's theory that innovation has stagnated. When
companies give their profits back to the shareholders instead of investing in
continued innovation, because they can't figure out a way to innovate with
that capital.

The world needs more Elon Musk type of entrepreneurs.

~~~
AWildC182
I agree wholeheartedly. The whole world seems to be in a consolidation phase
where every innovation from before 2010 is being milked dry (see iPhone
derivatives, streaming services, Lithium-ion tech, carbon composites, airliner
designs :P, etc...) but very little new tech is being invested in outside of
academia (and even within academia sometimes...). Everyone has figured out
it's more profitable to rehash existing ideas instead of take a risk and
markets are encouraging it. Want more profit? Buy your competitors instead of
invest in some moonshots. We've become very complacent as a society.

------
jshaqaw
Companies that can productively reinvest capital at attractive rates of return
get a strong valuation premium in the market. Every company would love to be
in this position. Companies that can make a compelling case to shareholders
for long-term investments get to make long-term investments and like Amazon
often get super valuation premiums.

If a company can't reinvest capital at attractive rates then returning it to
shareholders is the best option. Forcing companies to invest in unattractive
investments is the path to a zombie economy. I can't count the number of
companies that should have returned money rather than going on some
unprofitable growth binge.

------
LatteLazy
R&D spending is a badly understood black box. we incentivise miss measuring it
with weird tax breaks and complex rules. From an economic point of view, it's
not clear that existing firms should be engaging in it: many industries follow
model where specialists create new products which are then available to
industry via a mix of buying out small firms, licensing their products or
imitating them (that seems to be how big chunks of silicon Valley work and
also drug discovery and fashion for instance, three quite innovative sectors).

The result is the number being inflated up by firms dodging taxes, down by
people working in their garages, sideways by including things and excluding
other things based on weird regulations.

Share buybacks are similarly in a weird place: tax rules favour them twice,
once when buying back and again when borrrowing to fund that. Plus interest
rates are at a record low so that encourages them too.

People have a 1950s model that assumes research is something AT&T do and that
the amount they spend is an honest reliable value. But they don't and its not.
Some where someone is building WhatsApp 2.0 or 6G comms equipment in their
basement in weekends. Their time and energy is counted for nothing in these
numbers. And when they sell their company ro Facebook who issues shares to buy
it and then buy those shares back (as that's the tax efficient way to buy
things), they value they created will be a "buy back" not an "invention"...

~~~
mNovak
I suppose some amount of this line of reasoning (R&D is hidden under
acquisitions) would be observable if changes in R&D spending were compensated
by changes in total acquisitions (of smaller firms)

------
iav
1\. For mature tech companies selling high margin products, R&D is typically
8-16% of revenue while operating profit margins are 20-40% of revenue. Even
after taxes and interest, it’s natural for buybacks to exceed R&D

2\. Not all R&D spent is booked as accounting GAAP R&D. Any internal tool for
example can not be booked as R&D because it’s not sold to end customers.

3\. Companies outside of tech do not report their amount of R&D spend but
include it with SG&A. If deemed immaterial then you don’t see it

------
nine_zeros
Hey, the fed's giving free money. Why wouldn't execs do this? Imagine being at
the top of a public company, with unlimited borrowing ability and retirement
in a few years. Why wouldn't they?

------
AnthonyMouse
This is a misleading comparison. When you spend money on R&D, it's spent.
Somebody is actually consuming man-hours to do work that then can't be used
for something else. When you "spend" money on buybacks, it's just moving money
around. No scarce resources are consumed, it's just a meta-determination of
who gets to decide how to actually spend the money.

And moving the money from huge risk-averse corporations to investors that may
have a higher risk tolerance may _increase_ investment into innovative new
ventures.

~~~
onlyrealcuzzo
There's the bit about 60% of money being managed passively, and these passive
funds will buy Microsoft stock at $100 or $1M (proportionally). The stock
buybacks shouldn't affect the market cap (it's just moving money). It's
impossible to know if the buybacks have actually affected market caps, but
consensus seems to be that it's increasing market caps. That means you're
getting free money from passive funds. Seems like a problem for pensions and
most 401ks.

~~~
AnthonyMouse
That's assuming "passive funds" aren't what huge corporations hold their
liquid assets in when they're not used for buybacks. At least 60% is less than
~100%.

------
jcims
Every time i read these threads i feel criminally incompetent in finance. You
would think that putting your money to work for you would be incentive enough
to dig deep, but i don’t seem to have the mental stamina to figure it all out.
There’s probably a latent fear that I’ll also realize just how much money i
haven’t made and regret that too.

I need a course or something that i can walk into with $20k or whatever and do
all the things. Self-directed education doesn’t seem to help and Edward Jones
just wants to sell me their shit.

~~~
thekingofh
The game wasn't designed for you and me. It was designed for the ones that can
take advantage of it with massive amounts of cash, connections, and staff to
exploit it for them. Bet on the companies to figure it out for themselves and
just stick to index funds over the long haul. That way at least you're not
playing a game that was designed to take your money.

~~~
0x262d
this is good advice but also ordinary people should be able to understand why
the economy is breaking. most economists treat it as a mystical thing only
they can divine the meaning of, so it can be pretty hard to find clearly
written stuff for lay people.

------
kerkeslager
I've said this before and I'll say it again: in the absence of a tight
coupling between profit and payouts (either buybacks or dividends) the value
of a stock becomes detached from the value of the company, and approaches pure
opinion. When profitable companies don't pay out dividends or buy back stock,
their stock price growth has nothing to peg it to the actual profit of the
company. Likewise, when unprofitable companies pay dividends and buy back
stock, their stock price begins to directly contradict their (lack of) growth.
In short, with tricks like this available, the stock market is a bad way of
measuring how the economy is doing.

It's not clear from the article whether or not the companies borrowing money
are the same companies buying back their own stock. But if they are, then it's
clear that the economy (as indicated by real value being produced) has already
crashed, and this is just a hack to delay admitting this, so that execs and
the financial sector can continue to profit. It's become clear that the
government will bail out companies when this strategy inevitably fails, so
it's average people who will pay the cost.

To be honest, I am a bit surprised this hasn't happened sooner. It's a fairly
obvious hack: if you fail to produce value, just borrow money and prop up your
stock price. Perhaps that's why: maybe it's _too_ obvious--the people who make
their money by finding new and creative ways to move money around have to at
least create the _appearance_ of investing in real value.

~~~
AznHisoka
“in the absence of a tight coupling between profit and payouts (either
buybacks or dividends) the value of a stock becomes detached from the value of
the company, and approaches pure opinion.”

I think I can agree with that. Whenever I hear someone say that a stock is
overvalued because it’s market cap is 15 or 20 times sales, I always ask so
what? Who says 15 to 20 is too high. Why not 100 or some arbitrary number? I
mean, the stock has no dividend and they never have done buybacks and you
aren’t going to get a piece of their sales in the form of a paycheck! Why
should you care what multiple the market cap is over sales??!!

It’s all opinion. You are just valuing it based on what other analysts think
is the “right” multiple.

Sometimes I wish the stock market worked like a blind bidding auction. You
can’t see the current price nor the other bids. And nobody is allowed to
publish any articles expressing their opinions on any stock.

------
phendrenad2
There's two ways to look at everything. Buybacks can be seen as companies
giving money back to the shareholders. Or if you decouple the company from
it's stock, you'll see that buybacks are an investment in the company's own
future, since they believe that their own stock is at a discount now, and
they'll make more selling it later.

~~~
sfblah
Buybacks are to increase mgmt comp because they hold options. It’s a scam.

------
JumpCrisscross
Companies are buying back shares. Individual investors are selling shares [1].
Private equity [2] and VC are raising record sums [3].

Alternate title: financial markets shifting capital from public to private
companies. The economy’s R&D engine has shifted. Financial markets are
following.

[1] [https://www.wsj.com/articles/investors-bail-on-stock-
market-...](https://www.wsj.com/articles/investors-bail-on-stock-market-rally-
fleeing-funds-at-record-pace-11575801002)

[2] [https://www.wsj.com/articles/private-equity-firms-are-
raisin...](https://www.wsj.com/articles/private-equity-firms-are-raising-
bigger-and-bigger-funds-they-often-dont-deliver-11560859200)

[3] [https://news.crunchbase.com/news/the-q2-2019-global-
venture-...](https://news.crunchbase.com/news/the-q2-2019-global-venture-
capital-report-a-market-gone-sideways/)

~~~
dcolkitt
Yeah, I don't really understand the negative sentiment here. If a company's
buying back stock, then someone's selling those shares. That investor now has
extra cash on hand to invest somewhere else. It's not like that capital just
gets thrown into an empty pit.

Mature companies returning money is a pretty natural state of affairs. Unless
you believe that all growth and investment over the next 25 years is going to
be done by exactly the same set of companies from the last 25 years.

That's a recipe for stodgy sprawling monopolistic conglomerates. Competition
and innovation is only possible when new entrants challenge entrenched
players. And turnover in firms is only possible when capital is transferred
from the large, pre-estabilished firms to small, growing ones.

That transfer of capital to innovative challengers necessarily involves large,
mature companies returning money to shareholders either in the form of
dividends or buybacks.

~~~
JumpCrisscross
Prohibiting buybacks _might_ increase dividends. It’s more likely to boost
M&A. What it unlikely is for internal R&D, capital investment or hiring to
benefit.

------
Balanceinfinity
Totally amazed that share buybacks are controversial. If a company believes
its shares are undervalued, and the best place to use its capital, then it
should buy them back. In the same way, if a company decides retiring debt is
in its best interest, then it should use the money that way instead (and that
often happens when it has high priced debt in the markets that's callable and
interest rates fall). Comparing share buy back and R&D makes no sense. Would
we rather have Apple invest in R&D that it doesn't believe in, just so it has
a place to put its money? If companies couldn't buy back their stocks, they
most likely would pay dividends or just bank it (which is what Apple did for
decades), and the share price would rise anyway.

Share buybacks don't dodge taxes - at least not directly. They allow the price
to rise for those people who aren't selling (in the same way that banking the
money would).

------
paulpauper
The economy is becoming increasingly automated and dominated by a handful of
large, hugely successful companies that can keep printing out the same widget
or service over and over , generating reliable, recurring revenue streams.
There is no need for research when your competitors are tiny and or non-
existent, with no hope of closing the gap.

------
sriram_sun
R&D is an investment. So are buybacks. The powers that be have made the call
that _at this moment in time_ buybacks happen to be more lucrative than R&D.
There is significant investment in R&D going on - happening in the form of
investments in startups which will be targets of acquisition later on.

Tangential thought: Startups are experiments that validate theories on product
- market fit by generating positive cash flow. As a corollary, if you are a
startup, your developers should be focused on validating that theory
(iterating on MVP) and not fondly reminiscing and recreating
Ginfrastructure(TM). Post acquisition, there _will_ be a rewrite.

As there is a drop in internal R&D, there will be a corresponding rise in
acquisitions now or in the next few years. So it is a good time to be working
in a startup - preferably one that is making money!

------
acd
Its probably a bubble coming what happens when the stock market goes down? Ie
tradewar causes price inflation of goods on imported goods from China. Central
bank then increases interest rate to fight higher inflation. Price of new
money goes up, stock market goes down.

------
Thriptic
Perhaps I'm being simple, but I don't really understand the problem here.
Companies are sitting on too much cash that they don't know what to do with.
There is only so much that can productively be spent on R&D. If they don't do
something with their cash, investors will start demanding a dividend. Once you
start giving dividends it becomes hard to stop giving them. To prevent
perpetual dividends, companies perform a buy back which also helps out
investors but is a one time thing which doesn't need to be repeated.

~~~
habosa
But what's wrong with perpetual dividends? I think the relationship between
investors and dividend-paying companies is a lot healthier than non-dividend-
paying companies.

If buy 1 share of DividendCorp I can rationalize it as a stream of future
dividends generated by the company's profits. I want the company to succeed in
the short term and the long term.

If I buy 1 share of OtherCorp which pays no dividends I am purely speculating
on the price. I don't even have to care what the company does I could just be
one of those "technical analysis" people riding chart waves. I just need to
pass the bag to someone else at a gain.

~~~
Thriptic
You're not speculating on price, you are trusting that the company will make
sound decisions which will result in growth and future profits, thereby
increasing the stock's value. People mostly invest in stocks that don't pay
dividends as opposed to instruments that pay fixed returns or companies that
pay dividends because there is far more upside potential. I don't want all the
companies I invest in to start being big dividend paying companies because
that impedes their ability to grow.

------
Mikeb85
Good. Markets without buybacks and dividends are a ponzi scheme. The whole
point of selling equity in a business is to raise funds, use it to grow, then
return funds to investors.

------
mrfusion
I’m not getting this headline. Buy backs are something done with profit.

So replace the headline with “s&p 500 Profits now outpace all R&D spending in
the US”.

~~~
CyanLite2
Buybacks are happening without profit. Companies are borrowing money to
conduct buybacks.

~~~
derision
source?

------
LudwigNagasena
I don’t get the comparison. I don’t see why it should be a good or a bad
thing. Seems like two completely arbitrary numbers being compared.

------
finfun234
I have built a site which allows you to see whether individual companies are
buying back stock or diluting e.g. buying back
[https://shareseer.com/search?q=hd](https://shareseer.com/search?q=hd)

diluting [https://shareseer.com/search?q=t](https://shareseer.com/search?q=t)

------
partiallypro
Why do people think that if you pour more money into something like R&D you'll
get more results? That isn't how it works. You get diminishing returns on
anything, do you not think internal statisticians and economists at the
company haven't calculated that?

~~~
3pt14159
Sometimes it's about timelines, not sheer ROI. Apple is in a position to make
long term R&D bets because they don't face the same board pressure that many
other companies do.

Also, it's not only R&D. Long term capital outlays like building new factories
are also something that buybacks compete against, and some companies like
Telsa do the opposite: Raise more from the capital markets and invest in long
term spending in both R&D and capital outlays.

Looking at the system as a whole, though, board pressure aside, we should want
companies like Tesla raising cash for longterm spending while other companies
issue share buybacks or dividends.

------
nabla9
US R&D Spending Has Reached a Post War Record High
[https://thesoundingline.com/us-rd-spending-has-reached-a-
pos...](https://thesoundingline.com/us-rd-spending-has-reached-a-post-war-
record-high/)

------
bullen
All change requires energy, and we're going to have less energy, so the speed
of change inevitably has to go down.

Because the only energy added to the planet comes from the sun and the only
viable option to collect that energy are trees and plants.

~~~
sigstoat
and the only energy that comes into the sun-earth system is weak background
radiation! it's not enough for _anything_! we're doomed.

------
topherPedersen
This is a disturbing trend that's been developing over the past 100 years, and
I believe it is the main reason for our country's stagnating economic growth.
Let's take a look!

100 years ago, companies on average dispersed 90% of their earnings back to
shareholders as dividends. But by the 1970's however that number fell to below
50%. Fast forward to the 2000's and the payout ratio is down to around ~30%.

What happened? Companies used to distribute their profits back to their
owners, the shareholders. But that isn't what's happening anymore. In my
amateur historical analysis, I believe there are two causes for this
disastrous trend:

1) Tax dodging

2) The Casino/Gambling Mentality of Stock Market Investing

My theory is that the trend started with investors 50 to 100 years ago looking
to dodge taxes, and gain a little free compounding. Makes sense! Right?

But it's just gone too far. Now investors receive almost nothing for owning a
stock. Take Apple Inc. for example. In 2019 Apple made a profit of $55
billion. How much of that did they pay back to their shareholders? $14
billion.

And Apple isn't even the most egregious case. They at least pay a dividend.
Google, Amazon, and Facebook combined paid $0 back to their shareholders this
year!

So how has this insanity continued to go on for so long? The answer is simple:
Adults don't know what stocks are. They think that a stock is a thing that you
buy, its price goes up and down, and the game is to try and sell the stock
when the price goes up, and hope that the price doesn't go down. And the
machine that keeps the whole thing moving along is the Stock Buyback.

REFERENCE:
[https://web.archive.org/web/20070106223644/https://www.eaton...](https://web.archive.org/web/20070106223644/https://www.eatonvance.com/mutual_funds/dividend_story.php)

~~~
esoterica
Buybacks also represent profits being returned to the shareholders. They
aren’t different from dividends in that respect. Companies are still paying
out shareholders, they are just doing it in a different way.

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donjigweed
[https://mobile.twitter.com/CliffordAsness/status/11978972081...](https://mobile.twitter.com/CliffordAsness/status/1197897208106045442)

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nhangen
Buybacks are mostly evil, and used to make their managers/c level wealthy:

[https://www.epsilontheory.com/the-rake/](https://www.epsilontheory.com/the-
rake/)

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grandinj
Another way of saying this: S&P 500 profits now about 10% of all R&D spending
in the US.

(Assuming buybacks return 10% to shareholders, which is optimistic)

Because buybacks are just another way of returning profits to shareholders.

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1-6
I've watched somewhere that these buybacks is to keep the stock prices afloat
lest their employee stock options get hammered and they lose employees. Tech
workers are operating on fumes.

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aussiegreenie
Buybacks have only been legal for the last few years. There was/is a very good
reason that they should be illegal.

Buyback hurt the company but enrich the CEO and other executives.

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badpun
Hypothetical question: what happens if a company buys back 100% of its stock
and hence has no owners? For example, who would choose a CEO in such case?

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JMTQp8lwXL
Amazon has done 0 buybacks in the past 30 quarters [0] and is one of the best-
performing components of the S&P 500 index. I'm not convinced that all
corporate executives are right to assume that the best use of capital is to
simply repurchase stock. Look what it's done for Amazon: it's delivered great
economic value.

[0]: [https://www.marketwatch.com/story/amazon-doesnt-buy-back-
any...](https://www.marketwatch.com/story/amazon-doesnt-buy-back-any-stock-
for-30th-straight-quarter-2019-10-25)

~~~
jcfrei
Amazon is in a growing market: e-commerce. Lots of other companies are not.

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hew
Intrinsic value of the company > devaluing cash pile

(Presenting as "record stock growth" but in reality just trying to hold even
value.)

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tick_tock_tick
If we could just get rid of the silly taxation issues for dividends we
wouldn't have this issue.

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Bostonian
When shares of stock owned by an equity mutual fund are bought back by the
company, the fund uses that money to buy shares of other companies. The money
does not disappear or immediately go to consumption. Buybacks allow money to
be transferred from companies with poor growth prospects to companies with
better growth prospects.

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maerF0x0
a dividend gives back the capital w/o having to lose any voting rights.

When a buy back occurs you have to give up votes to gain liquidity.

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jumbopapa
Interesting that the market is at an all-time high and companies still feel
their stock is cheap enough to warrant investing in. When will this bull stop?

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typeformer
This will not end well...

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killjoywashere
Can someone explain this to me with beans? Like, let's literally count some
beans...

