I hope you enjoy these more educational videos from time to time. I realize they're not as entertaining as the more "newsy" videos, but I think it's important that we continue to learn and grow together as investors. I'll have my next video be more centered around commentary on current events. Try out M1 Finance here: m1finance.8bxp97.net/x9WY3x 🎉 Check out the 2,700 member Patreon (comes with a free trial): www.patreon.com/josephcarlson
Hi Joseph, what do you think about business that leverage themselves into negative equity situations? For instance, AZO and DPZ are both negative equity companies where the intrinsic book value is less than zero. I understand that they can still be valued by cash flows per share, and hence buybacks still help, but don't you think that these companies are at risk? I fear that some of these companies are borrowing money beyond their asset base to fund these buybacks.
Inflation depreciates idle money. I'm in a privileged position to be able to save almost 65% of our net household income, as I placed it on safer investments. The key for us was not spending beyond our means. If you invest and have other sources of income outside of dividends then you will be able to live off dividends. Got north of $520K in my portfolio as I bought a lot of dividend stocks before, I'm buying more now, and I will buy more when it drops further.
The main problem is that most folks don’t care about anything other than football, Basketball and Music etc. They find it normal to take credit card debt which will cost them 20% per year but considers it risky to invest their money and make 10% or more per month. Learning to avoid high interest debt while also learning how to put your money to work for you by investing is a very powerful combo.
Starting out with a professional that knows the ropes of the choppy but profitable market is the best way to achieve getting a well structured portfolio. That’s why I have been working with 'MARGARET ANN WARNKEN" because in financial dealings one has to be prudent. Most traders enter and exit with a quick 10% profit which is not bad in general opinion but why not make more of the opportunities presented?.
@@theresagarcia1218 She looks the part. MARGARET really seems to know her stuff. Out of curiosity i looked her up, found her web~page, and decided to read through her resume, educational background, qualifications and it was really impressive. She is a fiduciary who will act in my best interest. So, I booked a session with her.
I both love buybacks and hate them at the same time. The problem with most companies doing buybacks, they are buying heavily at all time highs and not doing buybacks when the stock is cheap. If you think about it, they get a higher return at a lower price and a lower return at a higher price. Some don't do this, those are good buybacks. Also politicians hate buybacks since they can't tax them like dividends.
Usually during this time of the year, we get to see certain stocks go up in the market, but that’s very unlikely this season cos of the recession and overall economic crisis, issue is I've been holding a lot of stocks hoping to sell for profit this month but I'm not sure if to keep holding or sell, I’ve been running at a loss since Q2 and 2023 is really not looking favorable for investors. The market hasn’t been looking good since COVID, and it will get worse 2023, you should sell.
I suggest you to critically examine the firms you own and their data estimates for the upcoming few years because the market will continue to decline. Even better, you could have a financial advisor help you rearrange your entire portfolio and offset the problematic investments you currently have. This technique has proven to be effective for me thus far because it reduces my level of stress and ongoing anxiety and saves me a lot of time.
@@gabrielaethan4092 Since this market is no joke for the typical retail investor, I've been thinking about hiring an advisor. However, do these consultants actually make any significant changes to a portfolio, or am I better off on my own?
@@arturomateo Unless you intend to buy and hold stocks for a decade, cos I don’t see a reason not to, I’ve been investing closely with an investment adviser for the past 2years and so far I’ve pulled over $450K in net gains and I’m not worried at all about where we’re heading 2023 because I know I’m in good hands.
@@gabrielaethan4092Actually, Susan Lorraine Curry is the investment advisor I use; I'm not sure if she's currently accepting new clients, but you can give it a shot; she's a popular advisor, so you can just search her name on Google to get in touch with her.
I'm all in on the long game, but with my savings going to waste to inflation and my portfolio losing gains every day, I need a fix right away. Currently, inflation is at roughly 10%, so my main concern is how to grow my reserve which has been sitting there for eons with nil to no gains.
As a beginner looking to invest in stocks, I can attest to the fact that it is indeed a complex process. To be completely honest, I would applaud anyone who was able to successfully profit from the markets because that is what I would also like to do.
Reserve isn't to grow but to maintain. When economy is Bidened like now with inflation, it's really good time to buy heavy and wait for a turnaround. Stock market, on the whole always rises.
I started investing in 2018 and by late 2019, I've netted over $750,000 with no prior investing knowledge or skill; I was simply following the guidelines set by the financial advisor I use, so you don't have to be a perfect investor or do the hard work; simply have a professional guide you.
@@martinerJuhel1 Patricia Susan Wallaitis is my advisor. She's a genius when it comes to portfolio diversification. You can look up her name on the internet and verify her for yourself. She has extensive knowledge of the financial markets.
I started buying heavily again at the end of September. I just felt the major price moves to the downside were behind us. I didn’t just buy Tesla either but the entire market.some of my picks are VOO, BRK-A, AAPL, IVV, NYSE, NASDAQ, TSLA, I've gotten 91% return so far this year, I'll see where it goes... fingers crossed. I guessed right so fa
Retiring soon, I and my husbands positions are depleted. but I don’t want to sell since I missed out on the big sell off and wouldn’t want to wait on the sidelines, just confused as to what to continue doing.
@@vergarasawyer3573 with looming inflation I hired an advisor Allina Dresslar Bell, Dec last year and sold my losing positions and kept a huge cash position, I am hedging with fixed income and a long/short defensive strategy she employs, enough to keep my head above water, You can schedule a call to consult with her,
I've saved most of my earnings, and i couldnt be happier to sit on the sidelines and just wait. It gives me time to just learn instead of feeling terrible about losing money, and its hopefully going to make me wiser with my investments in the future!
@@mokshsamay3189 We are having the hardest time getting ANY cpa to answer some questions in my area, I am skeptical about taking RU-vid financial advice videos as they may not be peculiar to us,
The big problem with Buyback (besides financial engineering) is that businesses are often terrible "investors" with when they deploy cash for buybacks. Look at charts of buybacks of the S&P500, they're at their highest when the market is most overvalued, and at their lowest after everything just crashed and stocks are dirt cheap. Very few businesses are smart about when to do buybacks.
because most people in positions of power are incentivized to pump the stock for short term gain, as they are paid largely in stock options. So the C suite will buy back for 3 year time horizon until their lock ups expire. very few CEO's are with a company for long term high and low cycles
Doesn’t really impact you tho. May make a stock more expensive but if you bought it before the inflation of the price then it’s fine as long as you weren’t DCAing into the stock.
I think the politicians hate of buybacks is for two reasons, neither of which is justifiable: 1) They want the money to be spend on R&D or expansion plans instead because that benefits the country more. 2) Like many investors they are too focused on the stock price and don't understand valuations or are just pretending not to understand; they see the price for a company that isn't expanding or doing anything new going up so they start throwing words like "fraud" around. The goal for them is to either get more tax out the company because they clearly have the cash if buybacks are regular or just to get more power for politicians in general by enabling more government control. Lots of fraud = gov intervention is needed being their theory.
I would advice anyone embarking on crypto investment to get a professional who will manage your account with less loses.I invest with a strategic crypto trader assigned by a crypto company that trades for me and returns my profit on weekly basis.
Exactly, didn’t start investing in Intel until the new CEO promised to stop buybacks and start building more FABS, pretty sure i have the lowest entry point of any Intel investor in the last 20 years
@@dynamitetortilla7519 if I was a shareholder, I'd rather they first pause the dividend, but too much of the share price is based on retirees who need dividend income.
Yup, buybacks are not good with a company that needs a lot of R&D expenses. That is why it took apple soooo long to start buying back. They built their cash reserves first.
@@EarlOSandwich To be fair, I think buybacks might have friendly tax implications. If the company does buy backs instead of a dividend it allows investors to hold onto their gains for multiple years without taxes. For wealthier individuals, they may never sell thus never paying taxes on gains. With dividends it creates another taxable event as the value flows from company to shareholder. So there really is an element to buy backs where companies are dodging taxation. But also... fuck taxes. The government has found a way to tax everything under the sun, twice if possible. Let them figure out how to balance a budget. Until then, I'd rather they keep debasing our money to pay for shit since they do that anyways.
@@EarlOSandwich Again, it’s the question of where do returns come from? Is a buyback really a “return” if the investor is not formally paid and hence, no taxable event occurs? These are just differing ways for the allocation of free cash flows, no?
@@EarlOSandwich I think you're missing the point. I specifically point out the tax benefits of the buybacks. While different investors may be looking for more consistent returns in the form of dividends, the wealthiest of investors are simply looking to maximize return. These two options are not equivalent on a tax basis. Buy backs will be more profitable over time than dividends in most cases. Wealthier individuals can therefore dodge taxes by controlling really great companies and pushing them to do buybacks. This may even push away smaller investors who (as you point out) may be looking for the consistency of dividends. So from a political framing buybacks can be a tool for wealthier folks to avoid taxes while simultaneously keeping many retail investors away from the stock (thus making the buyback strategy even more effective as Joseph explains here). In my perfect world we would simply make dividends tax free if they are immediately reinvested in the same stock. That way each individual investor is choosing to delay their capital gains (rather than it being a company strategy). Then retail investors wouldn't have such a hard time understanding the value of a company since they wouldn't have as many reasons to dig into their cash flow strategy.
What actually should be prohibited is politicians holding individual stocks. They should only be allowed to hold broadly diversified ETFs, like S&P 500 or Russell2000 to incentivize them to do good for the entire country, not just a few companies they happen to own. Once they leave office they should be allowed back to own individual stocks after a 10 year cool off period.
my portfolio has good companies, however I have been red for more than a year now. Recently started investing in the stock market and was down 35% last year and now down 27% in the last sell off. I work hard for my money, so investing is making me a nervous sad wreck. I don't know if I should sell everything and just sit and wait.
Building a good investment portfolio is more complex so I would recommend you seek professional support. This way you can get strategies designed to address your unique long-term goals and financial dreams.
I’ve been trying to hire a professional after all it’s what really wealthy people do, they hire more experienced persons to do the job but I can’t find anyone I can trust.
Just make sure you're frugal most times. Being frugal is about putting your dollars towards the things you care about and not overspending on the things that don’t matter.
@@tonisanchez7404 Wow I know Amie. Her platform maintains a unique perspective and is very transparent with their investors. Regardless of whether or not she outperforms i will always stay invested as her methods alone with keeping investors in touch with their strategies and outlooks are something that so few managers are capable of and they should follow suit.
You have missed the main reason some in the congress are against buybacks. It is a tax avoidance scheme. Dividends are taxed while share buybacks aren't. I would much prefer my companies to pay me dividends. You see, buybacks reward short-term investors and traders not loyal long-terms investors. It incentivizes you to sell, not hold.
No. Dividends are taxed because they are an income for the receiver. Buybacks only work if there is a seller of stock to buy from. That seller then (hopefully) realizes a capital gain and has to pay taxes on that gain. So taxes are paid in both scenarios.
Great video! Just a quick note, pabrais chart assumes the buyback will be reflected in the stock price, in many cases it's possible a company buys back 70% of it's own stock but the price is down a lot because of financial problems and what not. Example is Enron, IBM, GE and more.
Hi Joseph, greetings from Bulgaria. I'm a big fan of your work and I don't miss any of your videos about your main portfolio and your Story Fund. I find them both educational and entertaining. Let me make a friendly remark on the buy-backs. In your video you are sharing you assumption that 50% shares bought back means 100% (or 2x) return without a change in earnings or multiples. That would be true only if the there wasn't a volatility in the stocks market and the price of the stocks didn't go up and down depending on the situation. If the capitalization of a company goes down due to to a changed environment, then the buy-back programs won't be able to ensure the return that you are mentioning. Let's take MSFT as an example. The company has a huge stocks repurchase program, yet the capitalization is about 27% down year-to-date. That doesn't mean that in the long run the buy-back policy will not benefit investors. It surely will because of the fact that future earning will be divided between less shares and shareholders. However buy-backs do not guarantee capital gains at all which you missed to mention. Other than that it was another great video and I'm looking forward to the next episode. Best regards, Radko.
Yes, buybacks avoid capital gains tax simply because shareholders were not paid them, at least not in a reportable way. Berkshire has used this rationale forever when expkaining why they do not pay a dividend.
There are different types of buybacks. We need buybacks that actually retire the number of shares outstanding as opposed to merely offsetting stock options.
There are lots of mixed opinions about stocks and there projection in the next coming years, I aim for short term solid gains from market correction and I'd definitely jump on the boat if I knew a thing or two about day-trading, but then again what do I really know? I'm just looking for the right moves to grow and hedge my stagnant reserve of $370k from inflation.
In my opinion, the remedy to weather this recession and high inflation is short-term trading, as opposed to long-term, most folks using these techniques are netting a ton of gains, sure the risks are higher but yet again isn't the current market equally as risky?
You have to get a financial-advisor/broker to aid you diversify your portfolios to include commodities, inflation-indexed bonds and stocks of companies with solid cash flows, as opposed to growth stocks where valuations were based on future potential earnings
@@corneliajennins5714 Having an investment adviser is the best way to go about the market right now, especially for near retirees, I've been in touch with a coach for awhile now mostly cause I lack the depth knowledge and mental fortitude to deal with these recurring market conditions, I netted over $220K during this dip, that made it clear there's more to the market that we average joes don't know.
@@veniceblackwood2931 that's impressive!, I could really use the expertise of this advisors , my portfolio has been down bad....who’s the person guiding you?
The math of buybacks is not exponential, it's hyperbolic. That's even more crazy than exponential because it diverges to infinity when you approach 100% buyback. The return is R = 1 / (1 - B) where B is the shares bought back expressed as a number between 0 and 1 (where 0,5 would be 50% of shares bought back).
I'm not an expert but, if the company is buying back its shares while at the same time, not enough people are selling the same number of shares. The share price will raise even more quickly. So if the company is buying 1000 shares but we have only 500 shares. This will push the price even higher to convince the other shareholders to sell their shares
Very interesting topic Joseph. Yrs ago I looked at AZO and wondered why it was trading so high at 600 to $800. You explained it very well. OK lets put together a portfolio of stks with outstanding shares going down in the early stages. Then sit back and relax....lol
The main reason buybacks are better than dividend is due to taxes. When dividend are paid, with some exceptions investors have to pay income tax. Whereas with buybacks you're building equity and don't necessary have to pay taxes now, and even when you pay them it'll be the capital gains tax which is lower. That's where the gain comes from not done magical percent math. You seen to think that the money to buyback shares comes from nothing.
Dropbox is also a great example. PE of 12-15, super consistent growing FCF, and massive share repurchases. 15%+ reduction in shares since 2020 is a beautiful thing! The only caveat is their relatively high stock-based comp.
Stock buybacks need to be banned or heavily taxed. That money is better spent on paying off debt, R&D, other investments into the company, or increasing employee wages/benefits.
Better for who? Sometimes a buy back is the best use of capital for investors. I’m sure you can imagine very mature companies for example that have no high interest debt and no reason to waste money on R&D if they have a super mature business model / product.
@@burgerboot oh and better for literally everyone in America… the investors would be better off if the company had less debt or if the workers got paid more because we all know workers spend their money.
@Nick Oloteo - Big Dividend Energy Not all debt is bad; a higher return on invested capital than the interest rate suggests the company is efficiently utilising the leverage for a greater return. Most companies also have some form of stock based compensation so buybacks help mitigate the dilution that would otherwise be the case for the other investors. Provided, most companies aren't as efficient with their buybacks, they can be a good way of returning cash to investors when performed properly at a price below intrinsic value.
You didn't talk about a big drawback of how some companies make buybacks. Debt. Auto zone issued $1b in debt in the last year right before we are expected to enter a recession. If they have cash flow troubles, they may need to issue more debt at higher interest rates. You said an 18 forward pe is low, but it's not - and especially not for a low growth company that some expect to be obsolete in the future.
Yes, I heard only the positives about buyback in this video. No doubt reducing the outstanding shares is good but not at the cost of going on debt or not investing in R&D
It is worth mentioning that buying back 25% more when you already bought 50% will cost the same amount of money as the initial 50% since the stock price should have doubled. So the compounding effect is less magical than you might think from a first glance of your chart.
Joseph you amaze me every time! I have been listening for a long time and love that you go into such great detail. You don't add fear or greed just facts! Please keep this up! I tell all my friends to listen to your chancel to learn about real long term wealth creation.
The Autozone example is misleading. Only the remaining 14% of the IPO shares saw the total increase. The other 86% of the IPO shares were bought back at lower multiples, with the early buybacks having much lower multiples. In the extreme case of 1 person buying all of the IPO shares and only selling them back to the company, they would've only realized the huge percentage gain on 14% of their original IPO shares. However, the chart implies that any investor that bought at the IPO and held all their shares until today would've seen those huge gains as well, which isn't true. The other extreme would be all IPO investors holding onto their stock until today without ever selling any shares. But then the company would not have been able to buy back shares, since nobody was selling, so the buyback gains would've never happened. The only way to realize the return from buybacks is for other people to be willing to sell shares back so that you can hang on to your shares in the hope that the buyback results in a long term increase in share price. As you pointed out, however, buybacks don't always result in long term share price appreciation.
@@jamiewalkerdine3705 I'm not judging buybacks as either good or bad. I'm simply pointing out that the returns over time as shown on the chart only apply to 14% of the original shares. Clearly there was a great return on the original IPO investment over time, but the total return from all IPO shares was nowhere near what the chart indicates.
Any one can see that companies issuing more shares are looking for growing the company but as soon they start buying those shares back it is kind of safe saying they are not investing much in the company anymore and it is all about money for the holders. Is it good for your portfolio? Initially yes! For consumers and future investors? Probably not so great!
How does the formula works on math behind buybacks, how is 90% Buyback = 10x and whats an 20% Buyback??? Just wanna understand the math formula behind?
The return is R = 1 / (1 - B) where B is the shares bought back expressed as a number between 0 and 1 (where 0.5 would be 50% of shares bought back and 0.2 is 20% of shares bought back). So for a buyback of 20% of outstanding shares: B = 0.2 then R = 1 / (1 - 0.2) = 1/ 0.8 = 1.25 or 25% return on investment.
What are your thoughts on ASML? Its interesting to me, my friend says buy it all day: its a monopoly. But even monopolies should have a price tag right? I started adding now but its interesting to me.. Also wondering if you have thoughts on P&G, been keeping an eye on them and might buy in the near future :)
AZOs PE may look stable, but the PS ratio is historically high, because their margins are currently very very high, and with EV headwinds, I dont know about this company,
What happens when there are not many shares a company can buy back are left? To they split then to make the shares outstanding growing again to start buying back them again? Are the bought back shares also splitted then? Thank you
I skimmed through the comments to see if the new Inflation Reduction Act was mentioned. Starting in 2023 there will be a 1% penalty for buybacks. A few exceptions, REITs are exempt, but this could have a major impact on the future of buybacks. Seems like politicians finally did something about buybacks...taxing it starting in 2023, I expect many buybacks prior to year end.
it'll be interesting to see the impact of this, i feel like the 1% penalty is still advantageous vs. returning $ to shareholders via dividends that they'll end up paying a much higher tax rate on
This is a great video on why buy backs are good from an increased return perspective, but you did little to address the actual arguments people have against them. I'm not against buy backs, I just feel you presented only half of the story.
@JosephCarlsonShow excellent episode. Would you mind looking at CMG, CROX and any other companies that may be doing share buy backs? I don't invest much into stocks that don't pay a div but it could be a good way to fund Large Blue Chip companies
I guess a better EPS than revenue growth could also have something to do with better margins, just worth saying! Also, some maths, a x3 return is +200%, not +300%...
It's their money and they should be able to do whatever they want with it. Buyback is not an issue, if you don't like a company that does buybacks then don't invest in it. It's very simple. No one is telling you personally what you can and cannot buy.
I'm experiencing the same thing, i just try to keep a super long term outlook, when I look back 20 years from now ill be pointing at these dips and saying how grateful i am that i kept buying. Best of luck!
I don't think people like Warren are against them for investors. As you explained perfectly in this video, it's the opposite. Most people don't have investments and never will, so it makes sense for your politician to be against these for the majority of their voters.
That's correct, if a company has X% dividend, and buyback 10%, it can use 10% less next year to pay the same amount next year, and the yield can go up 10% too for the same amount of dividend in cash for the company.
Could I drop my companies stock prices by firing people lowering production and buy them back at a lesser price return to normal business production and gain massively?
Just a couple of points: If a company is doing buybacks to offset employee options being exercised then they should have to take a charge against earnings for the amount of the buybacks that are related to the options exercised as they are using funds owned by shareholders to mask the dilution caused by this form of compensation; There should be a fairness calculation done and all of the details of the calculation inputs showing how management is valuing the shares in the buyback. Management bonuses should not have any metrics used that are enhanced by the buybacks with full disclosure to the shareholders. Seems that a little sunshine would disinfect a lot of shady management practices with buybacks.
I think buybacks are necessary, but I think corporate stock issuance for executives need to be limited. In the past companies I have worked at, about 20-25% of this companies buybacks annually were to offset shares issued for executives and board members. I think everyone should get equity then the pay gap argument goes away. As an employee I am not a fan, as an investor I am. I think as all things too much of something can be negative.
Returns come from a companies future profits and what you pay for those future profits now. Buy back policies , just like dividend policies , are irrelevant.
Railroads are probably going to be my focus for a while, great earning potential. They are great to buy because they have a captive market, no more railroads are going to be made in the USA, just ownership moves for what's here. The fact they own the track is amazing as well from a business perspective especially compared to other countries that only let them rent nationalized rail. ("Buy land they're not making it anymore" - Mark Twain) Thankfully ATM they have bipartisan support but this is also where risk/reward comes in. Nationalization of rail lines seems very far in the future if ever to happen in the USA, but we still see Amtrak even though Conrail is over. I hope in the future people see incentive to do maglev or bullet trains here and begin investing towards it in the markets but who knows. I enjoy both the dividend and buyback potential of these companies, so long as the government stays on their side and rail workers don't wildcat we should be good for fruitful returns. Hopefully worker conditions can also improve over time however simply to ensure wildcats don't happen, I personally don't see issue with 1 week or so of sick time seeing how it doesn't matter if you get 25% increased pay over 5 years if the flu one year gets you terminated.
Could you touch on Apple taking on debt for share buybacks? I don't see this as a positive. It seems counter productive. Could you shed some light on this for me?
Politicians are dumb. For profit companies are only in business to deliver value to investors. Not to provide jobs. Buybacks are just another way to return value to investors. If politicians want to reign in CEO pay, then make a law that ties CEO pay to a ratio of employee pay. (Also, CEOs need to be educated that they too are employees).
You might be neglecting where some of the recent anger about buybacks came from, which was large corporations receiving bailouts or relief funding that was intended to stabilize jobs and wages during the pandemic but were instead used to improve profits or stock price. So while you might be making the argument for how buybacks are a business and profit management tool, you're potentially leaving out the ways that buybacks can be bad. People also don't like to see a company cut wages, for example, and turn around and buy back stocks with the funds. Obviously, you can make the argument that the purpose of certain businesses is to make money and to place shareholder interests above anything else but that can often mean hurting other stakeholders, including the company's own workers and customers.
I think if a company receives a government bailout or similar help it would be fair to impose on that company a stop on buybacks and dividend payments until that bailout is repaid.
Obviously many people and politicians don’t understand buybacks completely (or at all) and others here have mentioned how badly some stocks do buybacks (timing, etc) but one of the biggest issues with buybacks from a public point of view is not the mechanism itself but the injustice of it. When companies do multi-billion dollar buybacks, all while paying terrible wages, mistreating workers, and polluting the world, you can see how that’s going to be pretty widely disliked. Yes, I know that to compete companies need to do whatever they can to continue to grow profits, but the problem is not that Amazon did the buybacks and stuff, it’s that the system allows and therefore encourages it. This is why much stronger labor protections are needed, because it can’t continue to be the case that only the interests of capital are protected by the government and not the interests of the actual people. Government should exist to protect the interests of the working class, not a couple hundred or thousand individual ultra-mega-wealthy capital owners. (Please don’t scream at me about capitalism in the replies, I’m just pointing this out)
IMO the solution is to let (or encourage) everyone be shareholder. Don't divide the country into wage slaves and shareholders and then play one against the other.
Shareprice goes up into the heavens and you have 10X your investments as long as the company grows together with the share buybacks too. Autozone and NVR are a few of these golden gooses.
the thing on doing buybacks or not is that is both good and bad: the bad is when the shares of the company are expensive, you are wasting investor's money the good is when the shares are cheap and you are actually returning something to the shareholder also: issuing shares is only good when it has an actual purpose, like good acquisitions
I think most stock pickers were "wrong" this year. Only those who were short all year were "right". A few percent of traders who are good at options and play only options were "right", made $$. Otherwise, we were wrong wrong wrong.
You could have provided more clarity to why Congress advocates to ban or regulate buy backs- which is to raise wages for employees and provide better benefits rather than enriching top shareholders and executives.
That second congressional member wants to ban dividends a as well. If some of them had it their way, there would be nothing for the actual owners of the company that take the financial risk in buying the stocks.
@@JosephCarlsonShow fair, I’m not saying that’s banning buybacks or dividends is correct, but I thought mentioning the reason could have added more clarity to your argument. Great episode as always
@@tedzane3665 thanks for adding that; I didn't understand what their reasoning was. With that said, this sounds more like posturing by the procedures than something that could realistically pass, right? Or am I being too naive?
@@tedzane3665 Sure. There's very fair arguments that buybacks are sometimes abused. Particularly if a company chooses to do them to boost EPS in the short term at the long term detriment of the company (like foregoing capex investments in favor of buybacks). That for sure happens. But I'm afraid that Congress uses a few outlier examples of abuses to try and regulate every company into extremely restrictive capital allocation policies. There are a lot of companies that use buybacks in a very fair, honest way, simply returning cash back to shareholders from the profits of a company. I think that there's sensible middle-ground in regulating buybacks, specifically making the executive compensation not linked to short term EPS performance. That alone would address most cases of buyback abuse.
At the end of the day it all comes down to the free Cashflow isn't it? They can either pay dividends, buyback shares or reduce debt with it. I as an investor profit from all of it equally or am I mistaken?
Just saying that buybacks are good because they increase EPS ratios is misleading. Those shares that are being bought back to reduce the number outstanding are being bought with cash that the company has as part of its value. So, they buy back $1B and they lose $1B in cash/value. Yay... your EPS went up, but the value of the company dropped by $1B. So... that's a good thing? Well, I guess if the company has cash lying around that it doesnt know what to do with... maybe. But, if the company needs cash to operate, expand, or whatever, then this is a BAD thing. It means that the company will now have to BORROW money for those actions and pay interest on those loans. The smart thing would be to issue shares when the stock value is high, then buy back when it's low. BUT... it's basically impossible to know when the stock is at a high or low, and often companies do these things at entirely the wrong times.
Is the return you get from the share buybacks from the original IPO date in the graph (12:55) you display??? lets say I bought apple stock right now and since my purchase of the stock if they buy back 90% of the shares would my return be 10X?
10x at 90% but 20x at 95% and 100X at 99%, buybacks are worth it, if it comes to very very high numbers of shares bought backs you can get insane returns!
@@nicklewandowski4983 The return is calculated from the time your bought your shares but of course you can only count those buybacks that occurred after that date.
Hey Joseph, you opened my eyes with the explanation where the returns come from. Can you also use FCF growth + Sharebuybacks instead of earningsgrowth + sharebuybacks? I am very focused on Free Cash Flow and the companies I follow are more likely following the FCF. Greets
IF done correctly Buybacks can be an amazing tool for both the company and investors. But, it's a fine line to walk, you want to find that middle ground of buying enough to not drain of cash, not to borrow for buybacks, and ultimately doing them at the correct time, when the stock is on sale, not red hot.
👋Hey Joseph! As a software developer, I would love to see a short series on how you and your team built Qualtrim! Totally understand if there's specific code that you aren't willing to share, but I would love to see your approach to building the platform over the past few years. Keep up the great work!
Ok wow. Now I understand the big Buffett buy of $HPQ; slow revenue growth, but insanely large buybacks as a result of lots of FCF, at a very, very cheap valuation. Really large % of the company shares is already bought back, but they will continue to do so at these valuations. At the current valuation, they can buy back the total market cap in 7-8 years. The exponential growth in stock price should follow suit in the next years, same as AutoZone. Love this explanation video, thank you!
This is a simple idea. The nuance is that the amount of compensation made by executives has risen behind any other employer level. Since executives get a higher compensation in stocks it should be easy to see this is a way to reward executives and continue to not pay workers. Literally simple and laid out over and over. Greed leads to issues. The argument Carlson gives is a false, dishonest comparison
