Comment by throw0101a | Hacker News Reader

Comment by throw0101a | Hacker News Reader

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> IBM did 140 billion in stock buy backs in the last decade.

And? What is the alternative, and is it any better?

> IBM has effectively been dead money for the last decade. They’re up 20%, including dividends, versus 315% for the tech index (XLK). IBM currently has a market cap of ~$100 billion, so when people hear they spent $45 billion on buybacks while their share price went down 38%, people get angry. I get it, it’s an easy argument to make.

> But a better argument, which Jake made recently is that poorly managed companies like IBM are doing the right thing by returning cash to shareholders. That’s $45 billion into the hands of investors who can then take that money and actually invest it in companies that are, you know, not terrible. Would the anti-buyback crowd be happier if IBM invested that $45 billion and had a negative ROI? And what about the $76 billion they “wasted” on dividends? Why does this return of capital to shareholders escape criticism? More on this in a minute.

* https://theirrelevantinvestor.com/2020/04/22/returning-cash-...

If IBM invested the money into actual research and product development - that would mean the money still enters the economy via the workers doing the research and development. I feel like this point isn't emphasised well enough in the quote above - and I wonder if the "anti buyback crowd" would have anything to say against that.

That presumes that IBM knows how to create something of value with its R&D department. If the R&D department is just finding faster ways to answer Jeopardy questions, real resources are going to waste. Those smart people could be doing important work somewhere else.

Sure, but that would be research done by IBM. That would still be money spent - the researchers still get paid - but it might be less likely to result in usable technology and sellable products than if someone else did it.

The point isn't just to give people money to spend. IBM is not a basic income operation. The point is to develop and make stuff that people want to buy, and IBM arguably has been doing less well at that than others. So letting the money go to the others who are doing better seems like a reasonable plan.

(I doubt that IBM was thinking of it in this way, though...)

> that would mean the money still enters the economy via the workers doing the research and development.

How much is it IBM's job to have more money 'enter the economy' versus for it to make money for its owners at a good ROI?

Bingo. Would you rather have a poorly managed company hold on to their cash and spend it internally, or return it to shareholders?

>Bingo. Would you rather have a poorly managed company hold on to their cash and spend it internally, or return it to shareholders?

I think it's a bunch of bs the way you are wording this. I know these are not your words alone, it's what people say.. but it's so misleading!

You say "return it to shareholders". Well, no. A dividend is returning to shareholders.. that's what a dividend is.

A stock repurchase is basically nothing more than the company buying back stock, and giving holders the option to sell theirs to the company..

The investor can sell the damn stock any time they want... this is NOT "returning it to shareholders".

It is a completely convoluted way to arbitrarily do a bunch of fancy things to both use cash, get stock, prop up the price even more since there is a buy pressure..

> A stock repurchase is basically nothing more than the company buying back stock, and giving holders the option to sell theirs to the company.

The point of a stock repurchase program is to decrease the number of shares on issue and therefore increase the value of each share. Theoretically share price = market cap / shares on issue.

Market cap equals share price times number of shares. But that equation can't be rearranged. Share price equals what the last person was willing to buy the stock at.

Buying back stock does raise the price. But only because it clears out the sellers that are willing to sell at lower prices and leaves the higher ask prices.

> Bingo. Would you rather have a poorly managed company hold on to their cash and spend it internally, or return it to shareholders?

It's not an either/or. A poorly managed company can make itself more dysfunctional by neglecting investment and returning too much cash to shareholders.

A poorly managed company can spend money internally on inappropriate things as well. It's not like IBM doesn't spend on R&D:

* https://www.macrotrends.net/stocks/charts/IBM/ibm/research-d...

AAPL spends on R&D, and dividends, and buybacks.

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