Quote:
Originally Posted by Boomer
Because I want to ask you a pertinent question, I must ignore the fact that you could not resist dragging your politics into this with that knee-jerk, dog-whistle routine you did.
Here goes.......
Because of your claimed ed cred, it seems like you are the perfect person to ask for a clear explanation that I have been looking for......
Although I know my holdings have benefited quite nicely from stock buybacks, I still do not understand how they are a good thing......
Sure my share prices go up and, obviously, buybacks are really good for high level execs running those companies. But how are buybacks, especially under the 2017 corporate tax law change, not just plain greed in action at the taxpayers' expense?
I know much of the corporate tax cut money was used for buybacks, instead of investing it in cap improvements and employees.
While some investors, who think they're hot stuff, subscribe to that old, "Greed is good" routine, I always say, "Unrestrained greed is bad economics" -- and all those buybacks could be taking us small investors ridin' for a fall. (Should those buybacks have been restrained in the first place when the corporate tax cuts were unleashed?)
I really do want to know what you have to say about buybacks and how they are of actual benefit to the real business of business and not just playing with easy money.
I hope you will take my question seriously and explain the justification for buybacks helping the big picture -- not just making the big-time execs' net worth a whole lot higher -- and lulling us small investors into a false sense of what ours is really worth.
For small investors who are heavy traders, maybe they are having a good time with these buybacks. For me, it feels like buybacks create phantom wealth and that makes a longterm buy and holder like me a little skittish.
I tend to think big picture, and I have not been able to get my head around how all these recent stock buybacks are good for our big picture economics.
Thanks in advance for your explanation of how I am wrong about my concern over buybacks creating phantom wealth.
I remain,
Buy 'n' Hold Boomer
|
First, a question for everyone, how do I know if someone has responded to my reply? Do I really have to scroll through the thread again to check? Thus the late reply.
Brandon's bill will tax buy backs, don't know how that is political. I use the name Brandon to clearly state my position. Like the saying goes, know where someone sits, before listening to how they stand. And because the story behind how Biden got that nickname is hilarious.
I don't believe I ever took a stand in favor of buy backs, but am glad to discuss. Corporate Officers are tasked with the optimization of profits for their shareholders, period. Does that mean for example, that they can pollute the planet in the name of profit? Or abuse their workers? Of course not, mainly because that would certainly hurt profits over time. So one big discussion is about the pressure on Corporate Officers to show quarterly profits. Public companies are required to report quarterly. There are ideas that would change that to yearly, 5 years, or something else. But that's enough on that topic.
As you know, stock buy backs decrease the number of shares in the market, which should increase the value of individual shares. The number of shares available for buy/sell in the market is called the "float". Shares held by the corporation and even mutual funds, are not in the float. That's how meme stocks can move so violently. A small number of people on the internet can target stocks with small floats. So stocks with small floats, like those that have big buy backs, are riskier and should reflect that in their stock price.
So on to corporate tax policy. Tax policy is friction in the market. If government introduces that friction and a corporation reacts with their primary goal in mind (to maximize profits), I wouldn't blame the corporation. The problem is with the tax policy. So what happens? The Government skews the market with regulation, then they propose to fix it with more regulation, like taxing stock buy backs. It's nuts!
Last, after the Tax Cuts and Jobs Act of 2017, there was increased revenue to the Federal Government. A tax rate cut does not mean lower revenue. In fact, it's always higher. Revenue crashed from $370B in 2007 to $138B in 2009, and didn't recover until 2015. Look at tax policy during that time for your answers. Talking corporate tax revenue numbers here. Although revenue from individuals mirror these numbers.