> Companies are giving their cash back to shareholders because each individual company thinks their shareholders can better allocate the cash, rather than the companies themselves.
This is very strange explaination. As stated it sounds like stock buybacks are some sort of altruistic endeavor resulting from some kind of collective shrug.
This couldn’t be further from truth. Buybacks are the result of executive incentives to hit a certain stock valuation. You can either do this the intended way by growing the company’s value by making competing in the marketplace, or you can do it the lazy underhanded way by manipulating the stock market by creating an artificial scarcity.
You don’t get chalk this up to a faceless emergent phenomena when there are a very short list of people on FTC documents who made the decision at each and every one of the these companies.
>This couldn’t be further from truth. Buybacks are the result of executive incentives to hit a certain stock valuation.
Why do you ignore the people who choose to sell their shares to the company?
Stock buybacks move cash from the company's coffers into the hands of selling shareholders, period. Whether it's good or bad to do so at any specific time is certainly debatable, but the idea that it "manipulates" the share price is wrong, both in theory and practice.
As a shareholder I want my money to be managed in a way that maximizes my investment. When executives incentives are paid by the value of the stock at a particular frozen moment in time, I get cheated. I get cheated because a buy back at the moment that the CEO and the board grade themselves is not in best long term interest of my wealth. I don't have time to be buying a selling stock everyday, they're fucking me by playing games. Money should be spent on research and development. That way GM and IBM dont become kodak, Walmart doesnt become Sears, and the great GE doesn't become...well GE is already there. Established american companies will grow from buy backs and mergers until they get disrupted because they didn't invest.
I highly doubt that compensation for executives is based on the value of a single share, not taking into account outstanding shares. That’s a blindly obvious loophole.
Their compensation would be based on market cap, which you can’t increase by doing a buyback.
That "blindingly obvious loophole" is basically the standard.
These compensation deals are very often based on earnings per share or value per share. And you can increase it.
The link below is from the Conference Board, which is about as rock-ribbed big business friendly capital establishment types as they come. Even they caution about executive trickery here.
This is very strange explaination. As stated it sounds like stock buybacks are some sort of altruistic endeavor resulting from some kind of collective shrug.
This couldn’t be further from truth. Buybacks are the result of executive incentives to hit a certain stock valuation. You can either do this the intended way by growing the company’s value by making competing in the marketplace, or you can do it the lazy underhanded way by manipulating the stock market by creating an artificial scarcity.
You don’t get chalk this up to a faceless emergent phenomena when there are a very short list of people on FTC documents who made the decision at each and every one of the these companies.