Comment by nyeah

Comment by nyeah 6 hours ago

I think I'm mostly agreeing. Anyway here's my story.

Buybacks can be good or bad for shareholders, depending on the buyback price.

Example. I take $1000 and securitize it as 1000 shares. The company sells the shares for $1 each. This is a no-fee closed fund, whatever. I'm the "CEO". I personally buy 1 share.

Anyway, one day the stock trades at $0.90 and the company buys back 500 shares at that price. (How $0.90? Maybe the largest shareholder was distressed and needed cash, maybe somebody didn't read the SEC filings. Maybe "the ticker tells the whole story" and the ticker told $0.90 for a few days. It doesn't matter.) Now the company holds $550 and has 500 shares outstanding. Each share owns $1.10 of USD. Expenses are zero. I kindly volunteer my services as CEO and sole employee.

Pretty soon the stock might trade around $1.10. (Why $1.10? wHo knows?) The people who sold for $0.90 might regret that decision now. Continuing shareholders make money if they sell now. Was this "good for shareholders"? Depends on which shareholder.

Now I (the CEO) decide the company will do a buyback. The company offers $2 a share. I sell my own share for $2. To make it simple, say the company buys back 275 shares at $2. Now it's broke. The remaining shares trade for ... whatever. Somewhere between $3 and $0? ($3 because growth rate!)

I personally doubled my investment. Anybody who sold at $2 also did well.

Buybacks can be good or bad for shareholders.

nradov 6 hours ago

That's not a valid example of things that can happen in the market. You're making up ridiculously unrealistic numbers and clearly don't understand the basics of how the process works.

Share buybacks are always executed at the current market price. The company doesn't offer a higher price. A large buyback order might move the share price up a tiny bit but triggering an increase from $1 to $2 is impossible for any company traded on a major US exchange.

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nyeah 6 hours ago

Pardon my bluntness, but you apparently don't understand how the process works.
I'm not claiming the price jumped from $1.10 to $2 without hitting any intermediate prices. That's your idea.

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- nradov 6 hours ago
  
  Well there you go again, lying and making things up. No stock buyback has ever caused a doubling in share prices. Going through intermediate prices is irrelevant.
  
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  nyeah 6 hours ago
  
  Yes, it was a made-up example. I feel that was obvious.
  If your point [about share price jumping suddenly] was irrelevant, then maybe you shouldn't have mentioned it. How is this my problem?
  I see that you edited your previous comment before replying. Very clever. Now (12:03 Pacific) you have a company worth $1000 trading on a major stock exchange. Ok.
  Maybe you can make a spreadsheet similar to what I described in words, but using more believable numbers. If so, you can see the kind of effects I'm talking about. Buybacks are good for some shareholders and bad for others. Buybacks can be used to reward management, though others will be affected (+ or -) at the same time.
  Or maybe you won't/can't make that spreadsheet. Again not my problem.
  
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  nradov 6 hours ago
  
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overrun11 4 hours ago

Buybacks in theory do not cause share price to rise like your example though. Investors already price in that cash will be either reinvested at a high rate or returned to shareholders. You are reducing share count of a company that now has less cash which nets out in share price.

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nyeah 4 hours ago

Demand tends to push price up. Investors don't really know who's buying until later.
But yes, of course it's a toy example. I should probably have made the buybacks drive the price from $1.10 to $1.20 or something, with a much smaller reward for the founder & CEO. I got bored and kept it simple. (Or I got greedy for that $1 profit, maybe.)
All the working parts of the example are on display. You can make other examples that seem better to you.

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terminalshort 5 hours ago

This is a nonsensical example because companies aren't just barrels of cash, stock buybacks do not occur above market price, and companies never spend themselves broke to buyback shares because that would be retarded. You might try learning how corporate finance actually works before posting like you are an expert on it.

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nyeah 5 hours ago

If you can't follow a simple textbook example, good luck with the real thing.
Be well.

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- terminalshort 4 hours ago
  
  I worked in finance for years before I went into SWE and studied it in university before that. Your example would be found in no textbook (because it is complete idiocy) and you would know it if you ever cracked one, which you obviously haven't. You are just another bitter loser peddling conspiracy theories of how the financial system is rigged against you because you are envious of the money that people who actually understand it make.
  
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  nyeah 4 hours ago
  
  Fine. You're well-versed in finance. For ... reasons ... you're doing a very good impression of someone missing the simple point of a very vanilla toy example.
  And, yes. I admit it. I'm a fanatical believer in the conspiracy theory that buybacks can be either good or bad for a given shareholder, and that this depends on the price paid for the shares, and on when each shareholder buys and sells. The system is rigged, I tell you! Rigged! .... but, er, ... sometimes it's rigged one way ... and ... sometimes, um, it's rigged the other way. You have to run the numbers. But it's RIGGED!
  We good?
  
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