
Corporate America's buyback binge feeds investors, starves innovation - walterbell
http://www.reuters.com/investigates/special-report/usa-buybacks-cannibalized/
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oldmanjay
I'm having a hard time understanding how innovation can be considered starved.
The steady progression of technology that's been going on literally my entire
life seems to belie the notion.

edit: clarification

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imron
The article is saying that if the money returned to shareholders had instead
been invested in R&D then you probably would have seen an even greater
increase in the progression of technology.

Who knows if that would or would not have been the case, but it's still an
interesting thing to consider.

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espeed
Google and Apple have more cash sitting on the sidelines than they could put
into R&D -- I don't see these buybacks as stifling innovation, it's more like
putting money back into circulation.

GOOG:
[https://www.google.com/finance?q=NASDAQ%3AGOOGL](https://www.google.com/finance?q=NASDAQ%3AGOOGL),
APPL:
[https://www.google.com/finance?q=NASDAQ%3AAAPL](https://www.google.com/finance?q=NASDAQ%3AAAPL)

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aaronchall
Share buybacks are one way of returning money to the shareholders (and that
shareholders usually prefer to the alternative, dividends, because they only
pay capital gains taxes on the increase in stock price, as opposed to on the
entire capital distribution). Ostensibly, they are returning this money to the
shareholders because the shareholders can better determine where next to
deploy the capital investments.

This article's authors are either naive and uneducated or grinding a left-wing
ideological axe.

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vox_mollis
That's not what's happening, though. US companies are increasingly _borrowing_
in order to execute buybacks, not using cash reserves to do it.

[http://www.reuters.com/article/2015/09/23/us-usa-fed-
buyback...](http://www.reuters.com/article/2015/09/23/us-usa-fed-buybacks-
analysis-idUSKCN0RN0D320150923)

Edit: downvotes? Perhaps another source: [http://www.wsj.com/articles/the-new-
bond-market-debt-investo...](http://www.wsj.com/articles/the-new-bond-market-
debt-investors-wary-as-offerings-fuel-buybacks-1442859162)

~~~
Lazare
Economically, that's irrelevant. What we want is for capital to flow towards
people with good ideas on how to invest it. It's not incredibly important
whether this happens by:

One: Apple making a ton of cash, and investing it in a great idea their CTO
had.

Two: Apple making a ton of cash, returning it to investors, who invest it in a
great idea some startup's CTO had.

Three: Apple making a ton of cash, investing the cash in the markets,
borrowing a ton of cash on the markets, and investing _that_ cash in a great
idea their CTO had.

Four: Apple making a ton of cash, investing the cash in the markets, borrowing
a ton of cash on the markets, returning it to investors, who invest it in a
great idea some startup's CTO had.

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Mikeb85
Share buybacks are an essential part of the stock markets. If money were never
returned to shareholders, the market would be a literal ponzi scheme.
Returning money to shareholders is what keeps the whole system legitimate, and
keeps confidence in the system...

As far as the 'innovation' side, money will be allocated where investors see
opportunity. So startups, IPOs, and so on.

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msandford
> If money were never returned to shareholders, the market would be a literal
> ponzi scheme.

Not really. Dividends are how investors have historically gotten a return.

Now that hasn't been much of a thing, especially not with tech companies for
the last 20 years, but there are still plenty of stocks you can buy that pay
dividends.

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Mikeb85
> Not really. Dividends are how investors have historically gotten a return.

Both are. Either way, investors demand some sort of compensation for their
investment once the company matures. If this didn't happen, there would be no
incentive to invest.

> Now that hasn't been much of a thing, especially not with tech companies for
> the last 20 years

And this is a problem, although once tech companies mature they generally do
return money to shareholders in one way or another. Microsoft, IBM and Apple
pay dividends, Dell bought out shareholders, for example.

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CapitalistCartr
That assumes large corporations must lead innovation, which hasn't been true
in decades. Startups do the bulk of that now, from li'l apps to SpaceX. Which
the BigCorps recognize by buying startups instead of doing innovation in-
house. The article even says it: "stock buybacks to make use of cash, coupled
with acquisitions to lift revenue." And the money returned to shareholders
doesn't vanish; its circulating in the economy.

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zzalpha
_That assumes large corporations must lead innovation, which hasn 't been true
in decades. Startups do the bulk of that now_

Care for a citation, or should we just take that on faith based on the Gospel
of the Valley?

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lukasm
Large corporations innovate, but they mostly pick obvious ideas e.g. better
batteries. They are design to execute known business models.

Startups pick orthogonal ideas of out necessity. Large corporations are not
efficient and it's raison d'etre for startup existence.

