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or for R&D, improving operations, or anything else that benefits the company.

ryandrake 3y ago
Exactly. When your company buys shares back (or issue a dividend) you're basically telling shareholders "We have all this cash but we have no idea what to do with it that will provide a return greater than our Hurdle Rate, so we're just going to give it back to you." It doesn't exactly inspire confidence to me as an investor that the company is creative and forward-looking, but apparently most investors love this signal.
- Eisenstein 3y ago
  Isn't a company supposed to make a profit though? At some point aren't a lot of companies pretty much at their functional maximum? Investing in 'growth' isn't always practical. Example: All-Clad makes great cookware, but they last a long time and the number of people who need new pans are finite -- why should they invest more money into the company when they are operating optimallly?
  - ryandrake 3y ago
    Absolutely. If you're the water utility or an energy company or some other company not positioned as a "growth" company, sure, hand back your extra cash to investors. But if you're a tech company, a stock buyback just says "we're out of ideas but still want the stock price to go up".
    - gruez 3y ago
      >But if you're a tech company, a stock buyback just says "we're out of ideas but still want the stock price to go up". Is that so bad? If I was a Meta shareholder I'd very much like the firm's profits to me, rather than funding Zuck's metaverse escapades.
    - unmole 3y ago
      It can also say: > We belive out stock is undervalued, so we will buy it ourselves. This will reduce our cost of capital and generate value for our shareholders in the long term.
      - ImPostingOnHN 3y ago
        > stock is undervalued this phrase makes no sense because it's an executive buzzword: the value of a stock is what someone will pay for it no stock is undervalued, it's at exactly the correct value. Executives conducting buybacks thus simply want the stock to be valued more than it is (so they can make more stock-priced-based-compensation money) that an executive from a company like Shopify has options for cash like creating value via growth, or paying their workers better, but instead chooses to just increase their personal wealth (and, incidentally, that of shareholders as well), is precisely the leadership failure being pointing out here
  - 6D794163636F756 3y ago
    Sure, but why does the profit have to go to the shareholders? Companies are expected to enrich their shareholders before they enrich the talent actually making the product they sell and I think people are right to question that. Asking why someone who makes a company 200k profit per year is being paid 50k is a fair question to ask.
    - gruez 3y ago
      >Sure, but why does the profit have to go to the shareholders? Because that's how companies are supposed to operate? Broadly speaking, companies are generally expected to pay their gross revenue three groups of people: 1. shareholders 2. bondholders/creditors 3. employees Employees get first dibs on the cash, but the amount they're expected to earn is capped. Bondholders comes next, and shareholders come last. If there isn't any money left over, they get nothing. In exchange, they also get all of the returns, should the enterprise succeed, as well as control over it.
    - JCharante 3y ago
      Why does your salary have to go to you?
    - wepple 3y ago
      Hmm, yeah I think I grok the argument. But if excess cash flow can go to employees, would you also expect employees to inject their savings when the company has a shortfall? I always considered employment a fairly simple exchange of my services for a fairly set rate, and investors/owners/funders to be the risk takers for ups & downs?
      - ImPostingOnHN 3y ago
        why on earth would they do that? It's not like the executives or shareholders would. I'm certainly not throwing any additional cash at a single company I'm invested in if it's on hard times.

Exactly. When your company buys shares back (or issue a dividend) you're basically telling shareholders "We have all this cash but we have no idea what to do with it that will provide a return greater than our Hurdle Rate, so we're just going to give it back to you." It doesn't exactly inspire confidence to me as an investor that the company is creative and forward-looking, but apparently most investors love this signal.

Eisenstein 3y ago
Isn't a company supposed to make a profit though? At some point aren't a lot of companies pretty much at their functional maximum? Investing in 'growth' isn't always practical. Example: All-Clad makes great cookware, but they last a long time and the number of people who need new pans are finite -- why should they invest more money into the company when they are operating optimallly?
- ryandrake 3y ago
  Absolutely. If you're the water utility or an energy company or some other company not positioned as a "growth" company, sure, hand back your extra cash to investors. But if you're a tech company, a stock buyback just says "we're out of ideas but still want the stock price to go up".
  - gruez 3y ago
    >But if you're a tech company, a stock buyback just says "we're out of ideas but still want the stock price to go up". Is that so bad? If I was a Meta shareholder I'd very much like the firm's profits to me, rather than funding Zuck's metaverse escapades.
  - unmole 3y ago
    It can also say: > We belive out stock is undervalued, so we will buy it ourselves. This will reduce our cost of capital and generate value for our shareholders in the long term.
    - ImPostingOnHN 3y ago
      > stock is undervalued this phrase makes no sense because it's an executive buzzword: the value of a stock is what someone will pay for it no stock is undervalued, it's at exactly the correct value. Executives conducting buybacks thus simply want the stock to be valued more than it is (so they can make more stock-priced-based-compensation money) that an executive from a company like Shopify has options for cash like creating value via growth, or paying their workers better, but instead chooses to just increase their personal wealth (and, incidentally, that of shareholders as well), is precisely the leadership failure being pointing out here
- 6D794163636F756 3y ago
  Sure, but why does the profit have to go to the shareholders? Companies are expected to enrich their shareholders before they enrich the talent actually making the product they sell and I think people are right to question that. Asking why someone who makes a company 200k profit per year is being paid 50k is a fair question to ask.
  - gruez 3y ago
    >Sure, but why does the profit have to go to the shareholders? Because that's how companies are supposed to operate? Broadly speaking, companies are generally expected to pay their gross revenue three groups of people: 1. shareholders 2. bondholders/creditors 3. employees Employees get first dibs on the cash, but the amount they're expected to earn is capped. Bondholders comes next, and shareholders come last. If there isn't any money left over, they get nothing. In exchange, they also get all of the returns, should the enterprise succeed, as well as control over it.
  - JCharante 3y ago
    Why does your salary have to go to you?
  - wepple 3y ago
    Hmm, yeah I think I grok the argument. But if excess cash flow can go to employees, would you also expect employees to inject their savings when the company has a shortfall? I always considered employment a fairly simple exchange of my services for a fairly set rate, and investors/owners/funders to be the risk takers for ups & downs?
    - ImPostingOnHN 3y ago
      why on earth would they do that? It's not like the executives or shareholders would. I'm certainly not throwing any additional cash at a single company I'm invested in if it's on hard times.