...all while concentrating ownership, giving managers greater power, and depriving the firm of ways to invest in growth. Buybacks should be a red flag, and yet: https://us.spindices.com/indices/strategy/sp-500-buyback-index …
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It should also be disturbing to work at a firm that engages in this sort of thing. It means management is spending time engineering share price increases rather than using cash-on-hand to invest in future growth.
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Replying to @slightlylate
Also worth noting that until the early 1980s the SEC treated stock buybacks as illegal due to their potential market distorting effects (unless you mentioned that and I missed it).
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Replying to @justinschuh @slightlylate
So, dumb question, why does a stock buyback distort the market more than stock issuance? It seems like they'd be the same, just in opposite directions.
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Replying to @jyasskin @justinschuh
Issuance is the firm taking investor money rather than returning capital to investors. That is, investors are paying to buy more of the future returns of the firm. Market gets information from those purchases.
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Replying to @slightlylate @justinschuh
And a buyback is investors giving up their future returns of the firm in exchange for cash. In both cases, investors are accepting a price offered by the company, which could be too high for issuance to succeed or too low for a buyback.
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Replying to @jyasskin @justinschuh
Buybacks are manager-instigated, marginal investors have little say or agency.
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Replying to @slightlylate @justinschuh
Which is also true of issuance, right? It has to be something about the combination of narrower ownership and the lack of ideas for how to invest more money. But growth-forever also seems like a problem.
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Replying to @jyasskin @justinschuh
Both require board approval and not much else. I think I'm really galled by the way it reduces liquidity for a stock (makes institutional investors more able to impact price) and signals "no ideas". How can tech firms do buybacks and still face employees?
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Replying to @slightlylate @justinschuh
"No ideas" is true of all of buybacks, dividends, and sitting on hordes of cash. (
@ Google, Apple) And yet, it also seems sometimes better for an established company to admit that it's doing a few things well and doesn't want to dilute management's focus.1 reply 0 retweets 1 like
The more honest way to do this is a dividend, so that's worrying.
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