I happen to go in circles when I think of buybacks as opposed to dividends, so I'm leaving my thoughts here, maybe I fail to see something crucial.
So, buybacks. Companies love them, so much so that they also apparently do it on credit at the moment and might possibly be one of a sources of a future crises (or something, this just happens a lot on r/investing). And I get the mechanism, mostly, in a shorter run: companies buy some stock back on the open exchange, prices rise, lower tax rates on buybacks as opposed to dividends, ratios like EPS go up, investors ('share-leavers') that did decide to sell their stock to the company get some nice lump sum payment. Okay, that's fine and easy to get.
What makes me go in a loop is a same process on a longer timespan: if I were to make a private company, never to release it on an exchange, I would probably like to find a combination of activities that is going to maximize the discounted profits directly available to me (owner). Otherwise, why bother (from the money perspective, I get that there are egos and ideals or whatever) with doing the business and going through all the hassle if the company just grows for a long time, producing and selling more and more goods and services, and then said company just dies because some new company either does the same stuff more efficiently or just renders the older industry obsolete, thus starting the cycle anew (looking by how many companies in an index stay there for, say 20 years)?
Similarly, if I have a stock of an individual company for a long time, that does for first 90% of the lifecycle have amazing earnings and profits per share, that goes ahead and does lots of buybacks for (some) investors and one day begins to make mistakes in the bitter end just going bankrupt at some point, THEN I (a 'loyal' shareholder) am left with nothing (no direct cash received, and the stock is worth zero).
On the other hand, if I do decide to actively participate as a partner with the company in the buybacks procedure in the end of the day it is not that much different than trying to outsmart any other participant on the exchange that also tries to buy your stock with cash (only difference being that cash is from the income of the company itself and the purchase will boost some stats and thus maybe the bump in a price will be more intense). Then, with the proceeds, you either try to buy the same amount of stock for lower price later like your intraday trader or just cash out completely on said investment and buy a yacht/Lambo/self-esteem, but end up with smaller share of a business that is, at some point, going to run out.
I guess the TL;DR question is: why bother trying to invest (in, importantly, lazy, set-it-and-forget-it way) in individual companies that constantly grow their business that apparently won't ever try to mature and start paying the shareholders (as opposed to 'share-leavers' through buybacks) more directly with their earned money (like Amazon or, to a surprising extend, Berkshire), if you can just as well buy companies with similar stats that do pay their shareholders with dividends and demise of most any individual company in a sufficiently long period of time is pretty much guaranteed?
Submitted August 10, 2019 at 08:02PM by qamtam https://ift.tt/2GXGd0E
