Officially a subscriber and enjoyed the article. But you haven’t convinced me that buybacks are bad for society!
I think your article rightfully highlights that corporate profits are well above historic norms (currently at 11%+ of US GDP vs. 7% historically), which has translated to wealth accumulation for business owners. I think it also rightfully calls out management abuse of share buybacks for personal benefit (which is also bad for shareholders). However, I disagree with the blanket attack on share buybacks. Share buybacks and dividends are just a mechanism for distributing corporate profits (which is your fundamental concern). They can create value for ongoing shareholders if shares are repurchased below fair value; they can also destroy value for ongoing shareholders if shares are repurchased above fair value (think of any company that bought back shares last year). I think the argument would be stronger to focus on your view of excessive corporate profits vs. share buybacks (a release valve for corporate profits).
You're correct, buybacks are not necessarily, by definition, bad for society! I didn't mean for this to come across as a blanket attack on buybacks, but reading it again with you comment in mind I can see how it came across this way.
If taken completely literally, there is no issue with Buffett's statement about ALL repurchases. ALL repurchases are not bad for the country - as you mentioned they are just a way of distributing profits to shareholders.
But...is ALL of something ever anything?
I think it's important to consider the context within which Buffett is making these claims. In a monopoly dominated world where profits are huge, and all of those profits go to repurchasing shares, while consumer prices are high (relative to what they would be if there was more competition) and wages are stagnant, I would argue that most of the share repurchases we see are unhealthy for society.
To your point, I should probably just argue this from the excessive corporate profit angle - this is the real issue. It's a bit tricky though, because often companies will argue that their profits don't just benefit their shareholders, and are spent back into the economy (see Galen Weston's comments from a couple weeks ago for example: https://financialpost.com/news/retail-marketing/grocery-ceo-testify-ottawa)
Anyways, thanks for this comment. I learned a lot about how I can bolster my arguments from your feeback!
Officially a subscriber and enjoyed the article. But you haven’t convinced me that buybacks are bad for society!
I think your article rightfully highlights that corporate profits are well above historic norms (currently at 11%+ of US GDP vs. 7% historically), which has translated to wealth accumulation for business owners. I think it also rightfully calls out management abuse of share buybacks for personal benefit (which is also bad for shareholders). However, I disagree with the blanket attack on share buybacks. Share buybacks and dividends are just a mechanism for distributing corporate profits (which is your fundamental concern). They can create value for ongoing shareholders if shares are repurchased below fair value; they can also destroy value for ongoing shareholders if shares are repurchased above fair value (think of any company that bought back shares last year). I think the argument would be stronger to focus on your view of excessive corporate profits vs. share buybacks (a release valve for corporate profits).
You're correct, buybacks are not necessarily, by definition, bad for society! I didn't mean for this to come across as a blanket attack on buybacks, but reading it again with you comment in mind I can see how it came across this way.
If taken completely literally, there is no issue with Buffett's statement about ALL repurchases. ALL repurchases are not bad for the country - as you mentioned they are just a way of distributing profits to shareholders.
But...is ALL of something ever anything?
I think it's important to consider the context within which Buffett is making these claims. In a monopoly dominated world where profits are huge, and all of those profits go to repurchasing shares, while consumer prices are high (relative to what they would be if there was more competition) and wages are stagnant, I would argue that most of the share repurchases we see are unhealthy for society.
To your point, I should probably just argue this from the excessive corporate profit angle - this is the real issue. It's a bit tricky though, because often companies will argue that their profits don't just benefit their shareholders, and are spent back into the economy (see Galen Weston's comments from a couple weeks ago for example: https://financialpost.com/news/retail-marketing/grocery-ceo-testify-ottawa)
Anyways, thanks for this comment. I learned a lot about how I can bolster my arguments from your feeback!
Sounds super interesting! I'm going to have to rename my reading list to "the Glen Brown's reccomendation list" soon, haha!
"Setting limits is something we stay away from. Not setting limits has put everything out of balance." - we really do need to find a middle ground....
Great summary of the (many) issues with buybacks!