The value of stock buybacks come from lowering shares in circulation. Fewer shares means that shareholders have to share profits with fewer, leading to larger profits or dividends per share.
How do you see that as a Ponzi scheme?
How do you see that as a Ponzi scheme?
A collectible card doesn’t have paying customers; many publicly traded companies do. They are real businesses that make money. When they make more, the price goes up.
You seem to ignore that.
The economy is not based on the stocks, but on the value the underlying companies produce. E.g. Tesla makes cars, Google runs a search engine. Such companies impact the real world - Baseball cards collect dust.
It’s a broken comparison.
Buybacks raise the EPS/earning-per-share by lowering the denominator (number of outstanding shares).
EDIT:
If P/E stays the same, but the E (earnings) grows, the P (price) has to grow too.
I think it’s quite uncontroversial to equate buybacks with dividends. Personally, I prefer dividends, even if they’re suboptimal tax-wise.
Buying shares means you own some of that; that is the value.
These companies likely pay their employees, and as a shareholder you get to partake and harvest value, without having to work for it.
If the company earns more than last year, the stock should be worth more. But of course, valuation clouds the picture, where dividends are usually simpler to model.
It’s no more “a piece of paper”, than a deed over a piece of land is. Would you also consider that “a collectible”?
You’re entitled to have your opinion, but I disagree with you on this.
Amazon currently has close to 11 billion shares of stock (https://www.macrotrends.net/stocks/charts/AMZN/amazon/shares...). Do you seriously believe that 1/11,000,000,000th control over Amazon in terms of voting rights is worth $240? A single vote is indistinguishable from meaningless.
I struggle with the same initial impression as you, and have reached an uneasy peace with the status quo by telling myself that the stock price is about the amount of dividends the company could issue in a dividend-friendlier tax environment, once its growth plateaus and it goes into cash-cow mode.
Completely agree about this part. I find it unethical that capital earns more than labor.
I don’t think that will ever change though, as capital also buys political power (in many countries).
That was my initial motivation for getting into dividend investing: If you can’t beat ‘em, join ‘em.
However, if they're at parity then the incentive is to just squeeze your assets for as much income as possible until you run their value into the ground. Which seems like a pressure for business owners / shareholders to be even more short-sighted than they already are.
Which is also my objection to a wealth tax actually (incentive to tank paper value of all holdings).
IDK. Taxation is sort of a blunt instrument and seems woefully inefficient compared to nationalizing assets on a case-by-case basis.
"Companies often act dumb, and therefore we should charge them less in tax" is not a particularly compelling argument to me.