No stock buybacks, pay dividends, that's why the instrument exists. Stock buybacks are an aberration of hyperfinancialisation, just pay the shareholders proportionally to what they own.
Dividends don't currently get the same tax advantages in the US, so until tax policy gets revised, it's better for the shareholders in question if there's a buyback.
There's also the matter that dividends are meant to be long-term and recurring. So it's not great for one-time windfalls.
Companies should buy back their stock if their stock is undervalued.
This anti stock buyback meme is silly. It’s like people who are anti shorting stock. Companies list on the stock exchange in order to sell their own stock to raise capital. If they have excess capital, absolutely they should be able to buy back their stock. And buy other companies stock if they see it as undervalued also.
It's not silly, it's a terrible incentive for companies flush with cash and paying bonuses to their executives in stocks, it becomes very easy to manipulate the stock price with stock buybacks for a larger bonus while letting the company flailing with underinvestment (or simply missed investments).
A great case to see the absurdity of it is Intel, doing stock buybacks for almost a decade to push its stock price up while flailing around and losing its edge, if it was paying high dividends while flailing around then major shareholders would be asking why the fuck would they be paying dividends while the business is losing competitiveness but by doing stock buybacks it kept investors "happy" so they could jump ship and let the company fail on its own.
Stock buybacks have perverse incentives, everyone responsible for keeping the company in check gets a fat paycheck from buybacks: executives, major investors, etc., all financed by sucking the coffers dry. The buybacks at Intel just made the company as a whole lose money, they bought back stocks when they were high and it only dipped since then (10y window).
The shareholders got what they wanted with Intel. If it was the wrong decision for Intel doesn’t mean it’s the wrong decision for everyone and should be banned.
The idea that the stock market can only be used to flow shares in one direction has no merit. If you want to regulate executive compensation do that with direct clear regulation on executive compensation, not via some indirect rule change on the stock market.
Stock buybacks are the indirect rule, it wasn't even allowed for most of the existence of stock markets, it's the odd one out which created perverse incentives.
It's not about regulating executive compensation, it's to close a gap that was opened and only led to poorer decision making at the executive/board level, there's no advantage to the company. It's a stupid instrument with no reason to exist except to return money to shareholders in a way they can avoid taxation events.
If you asked CFOs why they choose stock buyback over dividends, it is simple: tax efficiency. When you pay divs, holders are required to pay tax immediately. Buybacks act like reinvestment and are not taxed until the holder sells their shares.
Buybacks are in effect and by definition a kind of fraud even if people make excuses for it or do not want to see it that way. It's the equivalent of a vested interest driving up an auction price or, you know, buying a bunch of your own product and then using the "sales" figures to convince others to invest or buy your product at a higher rate/price due to artificial scarcity.
The fact that c-suites authorize buybacks largely to boost the stock price in order to trigger their own performance bonuses tied to the stock price only highlights that point.
If you did something even remotely similar, you would be prosecuted for fraud, because it's fraud.
1) Wrongful or criminal deception intended to result in financial or personal gain.
2) A person or thing intended to deceive others, typically by unjustifiably claiming or being credited with accomplishments or qualities.
The problem though is that the incentive structure is so that none of the involved parties has any disincentive, let alone an adversarial incentive to end the practice, let alone has standing to do anything legally, short of sabotaging their own stock value.
It's a totally perverse and corrupted incentive structure, similar to why both Trump or Biden, or Democrats or Republicans have the real will or interests in ... non of the involved parties have any interest in revealing the rot and corruption, and all parties involved have every incentive to keep it all under wraps, suppressed, covered, up and distracted from.
In some ways, a civil activist organization could in fact buy a single stock of one of the most egregious stock buyback stock price inflation causing corporations and sue them for fraud and deception, but it would have to come with a claim at manipulation of the market due to fraudulent manipulation of the price discovery process similar to a light version of cornering the market through restriction of supply, i.e., cartel behavior.
They can only buy back stocks from people who want to sell them. The people who sell them do so because they believe it's a good deal. The process puts cash in the hands of those sellers, who can then go on to invest in something else, keeping the market more liquid rather than the first company sitting on cash reserves. The price of an individual stock is pretty much meaningless, you must multiply by the total number of stocks outstanding to determine the market cap. So it is not the buying back of stock that represents any fraud.
If there is any fraud, it would be having performance bonuses tied to individual stock price, rather than market cap. But blaming the buyback itself, is short-sighted.
You are making a basic mistake. Assuming that the originating company or its interested parties are regular market participants.
They are in effect more like the guys who stand around a cup and ball scam to make it look like there’s action and winners and keys you think you could do better.
A buyback is a removal of the security from the market, not participation in the market.
It’s like people buying their own books to drive up sales in order to get in lists to promote more book sales, which is when they then supply the market with the books their bought once the price has been artificially elevated and has become sticky.
You may not like hearing that and it’s clearly not the mainstream street preferred narrative, but that’s what it is.
I don't find anything you said very convincing. You are simply characterizing a transaction as nefarious, and perhaps conspiratorial. Of course, there are incentives and perhaps even misincentives around such sales, but that doesn't mean they are inherently bad.
There are mechanisms that are commonly employed to REDUCE the price of the stock, (ie. a stock split), and nobody bats an eye about that. Buying back stocks is a reasonable way to employ cash reserves, and protects the firm from exposure to foreign exchange rate, and inflation risks.
I will agree with you that the way executive bonuses are structured can be a perverse incentive that borders on fraud. But blaming the buyback of stocks itself, isn't grounded in any inherent economic misdeed.
Do you realize how extensively companies have to document their buybacks? Who is deceived?
There is zero fraud implied or even suggested by stock buybacks. They are heavily-publicized-in-advance returns of capital to shareholders. That's it. The sales are often offset by the creation of new stock via RSUs, and in that case just reduce the dilution intrinsic to RSUs.
Shareholders want executives to be incentive-aligned to reduce agency problems. Stock based compensation furthers that goal. If a manager doesn't think they have a better use of spare capital than returning it to shareholders, returning the capital is exactly what shareholders want. There's nothing nefarious here.
You assume that simply because information exists that people will not only understand it, do so correctly, and act on it rationally and not emotionally.
Again, it’s like the Epstein narrative; the right and good thing is to release the information, but the whole system, both sides and most in between have a vested interest of one kind or another to keep it under wraps. We know there as organized human trafficking, sexual slavery, abuse, rape, and various types of racial master race level eugenics associated with out of control “intelligence” agencies, including for foreign governments against the American government …. It everyone is just covering it up because everyone is implicated or is mentally compromised and the “peasants” unlikely have the organized power to change that.
That is also all documented, in fact it was documented for how many years? 10? 15? 20?
Ever hear of a guy called Madoff? He sure made off with money of sophisticated and smart people for several decades.
Don’t lie to yourself about the confidence in the system.
