A stock buyback says “Are you sure you still want to be here? We like where this bus is going. Plausibly you don’t. Want out?” People leaving the bus increases the returns, and the risk, to those who said “Oh no, give up this seat for that money? Hard pass.”
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This has a sort of homespun aww shucks feel to it, but it is descriptively accurate and aimed at the homespun aww shucks notion that you’d really want to buy stocks for nice consistent dividends, like a bond with a little bit of upside, but not too much, not enough to ever sell.
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Speaking of aww shucks logic: yes, moving cash reserves off the balance sheet to shareholders does magnify exposure of remaining shareholders to the business’ future prospects, including in bad times. That was a major point of the exercise.
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If you don’t want increased exposure to FooCorp, when FooCorp says “Anybody want out?”, you say yes. Or you use any of the other zillion opportunities in public equities.
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“But what if you’re too inattentive or unsophisticated to make that decision?” Then does the financial industry have a product for you! It has very many, actually, but the one you actually want is an index fund. The equity exposure you want with no decision making necessary.
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Yes and no - index funds don't have a choice, which with the advice for unsophisticated investors to stick with them gives (limited) exposure. Plus there is the wider systemic risk - we make banks have liquidity requirements.
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Industries like airlines *know* there will be periodic shocks and downturns outside their control. Stock buybacks in good times and bailouts in bad fundamentally undermines the premise of private markets and privatises risk.
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Of course true, but the internal decision makers (CEO and board) directly benefit from the price rise, but are not impacted by the additional risk of the Bal Sheet hit. Need to pay managers differently so they behave to shareholder benefit.
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See also: dividends, but with less taxes. Hence popularity.
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Actually, they're mostly pensión beneficiaries, not in control of the money they own.
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