Well then, you should exit your echo chamber more often ;)
On a serious note though, given Miller and Modigliani, I do struggle to see if there is a problem, with buyback in a general sense (as opposed to what they de facto imply, bonuses for CEOs).
Btw, I have zero vested interest in these companies: I have $4000 in a retirement account (35 years old) mostly in cash like instruments. My wife has a 401k, but God knows why and what’s in it.
When I first heard of this trend of buybacks I got annoyed. But then I realized, isn’t this just a “Miller and Modigliani” switch from equity to debt financing?
The shareholders get cash and can reinvest it in other ventures, including buying the debt of said company.
(I like this! Focus on what you do, and if there’s isn’t anything left for you to grow into, let me figure something for myself. This is personal for me - my dad lost a lot of his retirement on GE stock because Jack Welsh decided to turn GE into a bank instead of an eng. company.)
Meanwhile the company doing buybacks hasn’t really changed (it’s book value is the same - see M&M [0]) except now it’s taxed far less.
The biggest problem with this is that the leeches at the top get bonuses for meaninglessly changing the stock price. Since their comp packages can go into the hundreds of millions (again, Welsh), this sucks!
We could argue that debt financing is unstable, and I wouldn’t disagree. But unless we’re talking stability, what’s the problem with buybacks?
[0] as an example, to compare Ford (4b shares @ $10) and Tesla (173m shares @250), you can’t just multiply their stock price by the outstanding shares (both about $40billion) . You must also add their debt load (ford co $150 billion, TSLA $14 billion). Ford Co is (for now) a much more valuable company than TSLA. After all it delivers millions of cars every year!
Debt was used to finance Ford factories, just as stocks would have.
On a serious note though, given Miller and Modigliani, I do struggle to see if there is a problem, with buyback in a general sense (as opposed to what they de facto imply, bonuses for CEOs).
Btw, I have zero vested interest in these companies: I have $4000 in a retirement account (35 years old) mostly in cash like instruments. My wife has a 401k, but God knows why and what’s in it.