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Comment by mywittyname | Hacker News Reader

A stock buyback is theoretically the same as a dividend, in that it should reduce market cap by roughly the amount of the buyback.

I do agree with your sentiment though. I feel like the wealthy in this country have developed the perfect scheme for leeching the wealth from this country. We will only know how bad it was after the postmortem, at which point, we will be (figuratively) dead.

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Is it too jaded to say that it most likely has always been, for all time? And that we are simply more aware of it these days?

I think it's more subtle now, though, and harder to be aware of.

Back in the day, robber-barons simply exploited the working class through substandard working conditions, and outright theft of money or property [citation needed].

Now, though, you need a deep understanding of global monetary policy, tax law, and labor laws to be able to connect the dots.

So I would argue that now is different from earlier times in history, because those who are exploiting the system have finally figured out how to a) hide it well enough, and b) co-op members of the classes being exploited to fight for those doing the exploiting through misdirection and propaganda.

That's the craziest part of all of this. The exploited actively support the politicians who cause maximum exploitation and vilify those who would actually help them. It's insane.

Isn't that why they are politicians though? Because they were able to promise one thing to the masses and deliver another to their funders? If they were bad at that, they wouldnt get propped up.

Honestly, it just doesn't make sense. And my experience, when you sit down with, and I'm going to say extremely conservative people because they are the ones I would put in this category, and explain it to them using facts, they just dig in their heels and ignore you. Humans. What weird things.

Source: I talk politics with family all the time; I'm vilified as the weirdo, brainwashed, college liberal in a family of conservatives.

Only it isn’t the same. Dividends are taxable, capital gains are only taxable upon closing a position.

Ok, so it's even better than a dividend. That would explain why it's used.

Yes. The reason I say theoretically is because, from a business perspective, they aren't different. Whether you buy your own stock or distribute a dividend shouldn't matter from a market cap perspective. It's still cash the company used to have, but no longer does and the market cap will reflect both equally.

Now some investors prefer buybacks for tax reasons, others may not. It depends entirely upon how they invest. If you're a buy-and-hold, then it's favorable due to lack of taxes, but if you rebalance a lot (which most mutual funds do), then it doesn't matter.

>A stock buyback is theoretically the same as a dividend

I don't think that is true at all.

A dividend is literally "We are paying out some amount of cash. If our stock price is $40 and we give $5 to each shareholder the shares should immediately go down to $35". Although since the stock price should be a NPV of the company's cash flow, they technically have even less working capital to create returns over the years, so I think the price should go down by even more than $5.. but that's a different discussion...

In a stock buyback.. let's say the price is $40 and they buy the equivalent of $5 back from the market. Well.. yes they gave away $5 but they also gained $5 of value because they are now holding the shares. It's a net zero transaction if their stock price doesn't change from it. Which.. it shouldn't unless you think it's a signal of something. Yes there's a bit more details, but value is not "given away" in the same sense.

In the dividend example, the company gave away money.

In a stock repurchase, they gave away money in return for shares of (almost) equal value.

When companies do buybacks they don't control the shares they buyback, the shares disappear. The market cap of the company decreases because they know have less assets but the stock price doesn't because the cap is split over less shares. Either way, the market cap theoretically decreases by the amount paid out.

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