The Debate Over Stock Buybacks, Explained | WSJ
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- เผยแพร่เมื่อ 5 ม.ค. 2020
- Companies on the S&P 500 have poured more than $5.3 trillion into repurchasing their own shares since 2010. WSJ explains how stock buybacks work, and why there's debate over whether or not they're good for the economy.
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Jan 2020: "Buybacks are now a big part of the landscape of American finance. There is no sign that is about to change"
Oh how quickly things can change.
Lol
Just what I was thinking lol, all the airlines are on the verge of bankruptcy and could have had more emergency money on hand if they didn't blow it all on stock buybacks.
Also, many companies used previous "bailout" money for stock buybacks. The economy would have been much better served by giving money to the poor and middle-class, demand-side stimulus, so there would be demand for products making it worthwhile for businesses to make investments. Without the demand, buybacks or parking the money in the bank were the businesses' only real options.
Exactly what I thought after she said it
@@Felddagryph No, with buybacks the money goes to shareholders. Many of which are the middle class you are referring to
Oh the irony of this video being recommended to me, as corporations are now asking for bailouts to get back their $ back to early 2020 prices
Marius I RIGHT. Smh. Atleast stock prices are worthless right now. Easy to make money later
Not really ironic. It's being recommended because lots of people are searching for it.
Why do you think so many CEOs jumped ship?
This is not ironic at all... As news of bailout being tied to buyback is coming out, many people search videos on what buyback means and the youtube algorithm tags the topic to show up in recommended videos
Not a bailout. Unlike 2008, where companies were bailed out of its own mistakes, the government has forced business to shut its doors. This is relief due to intervention into normal markets. Necessary intervention. But not a bailout. If I take a sledgehammer to your your vehicle......paying for the repairs is not a gift. It’s retribution.
I started investing in the stock market because of dividends. What matters, in my opinion, is that if you invest and earn more money in addition to dividends, you will be able to live off of dividends without selling. It implies that you can pass that on to your children, giving them a head start in life. I've invested over $600k in dividend stocks over the years; I continue to buy more today and will continue to do so until the price lowers even further.
It's always inspiring to hear from a veteran investor who has weathered the storm and come out on top. When your portfolio turns from green to red, it might be unsettling, but if you have invested in great companies, you should just keep adding to them and stick with your plan.
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Worker training is the biggest issue in any industry right now.
Everyone is willing to hire an expert or skilled worker but not willing to train one from within or from local work force.
Good call! The construction industry has an incredibly hard time in taking in skilled labor. It takes years to have a fully trained tradesman from within. In my case, the majority of professional tradesman were there for ten or fifteen years. We rarely see someone stay the first year because of the physically demanding nature. Licensed trades like HVAC, electricians, and lineman are losing a lot of seasoned workers within the next 10 years. The US is scrambling to find professionals as is.
Yep, demographics are also shrinking, corporations still falsely believe that the labor shortage will go away, it's only just beginning. Automation won't save them either.
@@richardwieder885 that's a different trend. Most millennials or Gen Z don't want to work in the labor intensive industry when there are other platforms to make a liveable wage.
@@sarfrazahmed8178 The thing is not everyone is smart enough, sociable enough, competent enough and clean enough to do the types of jobs they think they are entitled to. I see it all the time in my line of work, my company opens the door to anyone who can talk on the phone and pass a test, we pay 50k for licensing, literally giving these kids what they think they want, and yet they still leave after a year because "work life balance". Most millennial and gen z are perpetually unsatisfied due to the subversive idea of self esteem entering collective consciousness. Every fleeting thought is valid, every impulse and every whim is just, and every opinion is warranted in their minds. I love watching them break down crying realizing they are fundamentally broken, then they leave and either retreat to the basement communist tier or go work 3 minimum wage jobs because it allows them to coast.
Not everyone can work a white collar job, but everyone thinks they are better than blue collar, and when they realize they aren't, they are mad at the system when really they should be mad at themselves
@@alexanderbankowski5617 ok boomer
Buybacks help partially to explain this extreme bull run we’ve seen. Also makes me nervous that a lot of stock prices are propped up while companies are neglecting R&D and employee training.
Yes. Boeing is the great example of it.
Gabriel Calderón There are few rivals because companies were allowed to buy out their competitors. The executives don't care because they won't be around when the company goes under.
Short term wizardry > long term vision.
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Terisa Jensen stole from me.
Boy, this didn’t age well ...
Aged like milk
I was coming to comment this lol
I wonder how many poor Conservatives are still claiming "small Government" and "let the market decide"? We're basically spending tax dollars and risking inflation to bail out companies that failed to save money for a rainy day, all because they were more interested in propping up a fake financial image.
@@chrisjfox8715 it is stupid to think that people would recommend the same policies in normal time as they would in extraordinary times (such as when government asks a third of companies to stop producing in order to protect people's health).
And if you think the rules of business should be the same in extraordinary and ordinary times then you don't understand much about economics.
Companies and their shareholders shouldn't be punished because they are stopping their activities to help a worldwide effort: they should be helped.
They can sell all those precious shares they bought back to the federal government whenthey need a bailout
And now when companies need cash, they are now having to seek government bailouts... if only companies saved some of that money they use for buybacks...
yoshi101 You never want companies saving money. It’s better for everybody if the company distributes that wealth.
@@sliickers its better for the economy if they dont do buy backs while going into debts
sliickers - Pretty sure you don’t want companies going out of business either, and that’s what strict free market capitalism would have them do right now without any cash reserves.
@@kinghassy334 Well no, not exactly. They are giving money back to investors with buybacks. The investors can use that money for more capital investment, boosting the economy. It also increases the companies earnings, which they can use to expand or upgrade their business. Most companies don't do this however
@@sliickers :D :D :D You are awesome!
I have an exam on this tomorrow. Perfect timing
Nargis Hoque they knew
Funny thing is on this was illegal until Reagan made it legal again. Somewhere between the 1940s and 1970s it was illegal to do stock BuyBacks because of the fact that the companies weren't giving back to their employees until it was essentially made illegal and created the great economic boom between those times and made affordable cost a living a real thing.
Sykotik Shadow oh wow that’s interesting, thank you for sharing!
@@nargishoque6007 check this out. th-cam.com/video/ylLTMYt24lA/w-d-xo.html and along with the lowest percentage interest rates we have ever seen it's making it easier for people who have money the rich stay even richer and not invest into these companies that they buy and sell off for more profit then when they bought it. Essentially the world's economy will go bust.
@@SykotikShadow The real reason was lack of foreign competition for a brief window of time post WW2.
Funny thing is when the company board vote for stock buybacks, they started to sell their shares... Great timing all things considered.
@Red Divinity I too love speculating in the comment sections of TH-cam videos
Red Divinity this is not at all what it is hahaha
Exit strategy! 2008?
Disguised insider trading
Selling shares has lower tax rate than getting dividends because it's based on proportional capital gains. This is why investors love buybacks and sell shares over getting dividends.
Buybacks is a lazy way to increase stock prices, instead of actually growing the company.
How do you feel about dividends?
Jeremy 😂😂😂
Also makes the executives’ stock options worth a lot more
@@INeedMySpaceTech dividends drop stockprice, not increase it
@@vinaymane5538 his point was that it doesn't grow the company either
Wealth from stock buybacks just dissapeared in 3 weeks, so ya, maybe not the Plutocracy's greatest idea.
It sounds like a company can manipulate stock metrics to influence how shareholders are able to view their performance...
Manipulate? If that's what you want to call it, but it's not like the effect isn't real. No matter how you increase the EPS, it's still increased. As a shareholder I support buybacks.
It’s their money, they can do what they please with it. Every company manipulates their stock, it’s part of the game
barebearburiesbarrysberries no, wealth taxes have never worked in history. If you want a strong middle class you need a strong currency. Wages don’t keep up with inflation so weaker dollar means asset prices inflate and the rich pay off their debt quicker than a regular ole joe. It’s a sick game they designed, we just have to play it and take over
Keoni Mana that’ll never happen until we see a full on revolution. But I do agree, it’s the only fix. We need a hard reset on this economy
Manipulating in the sense of decreasing price fluctuation.
Just a smart way of getting rid of unused cash.
They used to be illegal - for good reasons.
It's funny how this video doesnt mention a company has the option to raise wages for its worker as a reward for thier hard work at 1:24. Corporate media is so subtle.
@@kinghassy334 pretty incompetent of the corporate shills to forget to omit higher wages from their Chuck Shumer quote at 3:27 isn't it?
@@kinghassy334 please stop pretending you have any understanding of the economy or business while at the same time being a Bernie Bro.
Easy formula really, buyback and drain ensuring at anytime the company has only $5 worth of gas in the tank....crises will hit once every ten years, and governments will bail you out aka stimulus...this cycle repeats once a decade and each time the ordinary taxpayer is used as a wedge to normality via high taxes, low wages, higher cost of living etc etc.
Can someone explain why they were illegal and why Reagan made them legal?
Buybacks were once illegal 🤕
No the problem with buy backs is that a companies leadership is judged on stock performance and buybacks are an easy way to goose them divides have no such moral hazard, then again I also support banning leveraged buyouts for a similar reason
Teringventje It rewards a company for doing NOTHING of value to the economy. Of course it should be illegal. Company’s started to become corrupt beginning in the 80s, when these became legal
Teringventje By nothing, I mean that it encourages companies to increase stock prices, which the vast majority of Americans have no stake in, rather than anything that actually improves their products or services.
Teringventje And shareholders have little to no value to society. Stakeholders do. This benefits nobody but shareholders and execs and doesn’t even ensure the stability and longevity of the company in the long term. Overall, it promotes short term profit at the expense of long term prosperity
The glorious trickle down economy right here in this video.
but it does trickle down. Unemployment is at lowest rate in decades.
@@joshn2342323 Look up underemployment.
@@joshn2342323 sorry what was that?
@@joshn2342323 it all implodes when people are focused entirely on short term gain with stock buybacks. Here we go again.
Another goverment bailout for all of those "saavy" businessmen.
We need a video on the "stock options" for executives.
It's amazing that among the options companies have with their stockpile of money, "giving back to their employees" was never even mentioned. Just wow
I noticed that as well.
Thats called salary
Just look at 3:30! Do not speak if you don’t watch thé video until the end !
If a company goes bankrupt, no employee will bail the company out.
owners of the company earn theirs "wages" in the form of share buyback. Nobody will own stocks of they will not be compensated for that - people will buy cars and houses instead of stocks and there will be no jobs for workers.
Building new factories? Lol You mean getting new contracts in China or Mexico?
Aquí en México ya tampoco quieren invertir, ya todos se van para Indonesia :(
@@arcodax3302 Que lastima.🙁
You mean china,,there is not such a thing as Investing in Mexico anymore. Producing in china is way cheaper than in Mexico nowadays.
@@ricardoramos3754 China relocate low skill to Vietnam and other neighbor countries.
Just so that Karen doesn't have to spend an extra dollar or two...
1:34
How about using that money to give higher wages to their employees!
That would be socialsm!!1
@@epzilon1 A company using their money to pay their employees a higher wage? That's socialism? LOL
Those evil corporations!
How about that money is completely worthless, only artificial numbers. If we went back to gold standard there would be more wealth circulation, and the middle class wouldn't look like a finished apple.
@@911aaron Giving people higher wages would just increase the prices of everyday items and food. This is how it's been since the 60's, gradual increase in minimum wage, but massive profit growth on their companies. See more regulations really just hurt the small business owner which hurts you.
*stonks*
The buy back bubble.
great, brief explanation with helpful visuals! thanks!
When companies have excess cash, they forgot to mention pay their employees more.
It's their money and flipping a hamburger isn't that hard
That's not how economics works. Employee compensation is a function of the labor market, not how much cash the employer happens to have saved up.
Companies do not exist for the purpose of employing workers. That would be make-work.
Companies only pay employees what they are forced to. That is the definition of capitalism.
@@johanocampo5422 I guess you have never recieved a messed up order? Flipping a hamburger is very hard. Go get a job at a fast food chain. I bet they fire you in a week.
Employees getting paid according to the value they bring to the market place. That is Capitalism...
Shareholders love buy backs (speaking for myself) basically a dividend without having to pay taxes.
Depends if they just diluted the shares out again with options for execs. GE was doing huge share buybacks before they went down. They could use all that cash now and do the same buybacks for a fraction lol.
What you profit from today you'll have to pay for tomorrow. The biggest bubble in history will eventually pop and it will take a long time to come back from.
lol building castles in the air. remember, nothing comes for free.
It's all temporary because the corporation winds up in massive debt from the buybacks then will not be able to service the debt and then goes under like Sears, Kodak, GM...
Ray Bod Sears Kodak & GM (GM shouldn’t even be on your list) didn’t go under because of “debt”, they went under because of competition. These “buybacks” (in this example) we’re executed with “stockpiles of cash”, 1:20 not lines of credit.
No stock buy backs are not good. Management puts a company into debt to artificial raise the stock price instead of investing in it's OP-EX or CAP-EX. This type of thing is making the U.S institutions 2nd rate.
I like how in Germany the board doesn’t just represent the investors it represents the employees as well
Cool, I had no idea. I'm fairly sure we don't have that in Sweden, despite our systems being more similar to each other than to the American system.
@@lindhe it exists - "Arbetstagarrepresentant". Though, it's not a requirement to have.
That's why Germany has so many benefits, jobs and companies.
Hasn't Germany been on the brink of recession for a while?
4:22 is the real reason
and the video should be those 10 seconds, thats it.
This channel has saved my life.
How about investors value a firm on other metrics rather than relying on EPS? Also, why should a company be penalized when buying back stock? Perhaps other possible investments have a negative NPV. I don’t believe share repurchases are as evil as these politicians make it to be. Let the market do its thing.
This won't end well. Especially for most of the companies that borrowed money for their buy backs. I'm sure we will see government bailouts in the future.
Bailouts with what? It's not like the government currently has the tax revenue for it.
good call Trump is already lining it up for them again in the energy sector . everyone in the working class should be getting their torches and pitchforks ready
Spot on Hugo things are looking worse everyday.
you literally predicted the future
Very informative!
Now the companies that did buybacks should sell their stock instead of asking for bailouts.
Issuing shares AFTER a crash won't net a whole lot of profit.
How is this not considered illegal insider trading?
Because politicians are totally corrupt.
Chainsaw Aardvark Cause Merica
How _would_ it be? I don't think you understand the practice
Thank you so much, this is the clearest explanation of stock buy backs on TH-cam!
Would love an update on this given the current environment!
@wall street journal I think you guys omitted a big part of the critism on stock buybacks and that is investment in employees i.e. higher salaries. A company except for it’s IP is worth nothing without it’s employees, so I don’t agree with your argument that profits should only go to either the shareholders or other investments in companies. This is also important because that was a big part of the GOP’s argument to lower the corporate tax rate to 21%, which we all know the companies didn’t do and instead bought a lot of their stocks back.
@bigbrotherau05 They didn't omit it. It's right there from 3:20 where they said that Chuck Schumer and Bernie Sanders pointed out those same issues you mentioned.
And by the way, it's not WSJ's argument that the profits should go to shareholders, they are just pointing it out that it is the argument companies used to justify share backs.
what you mentioned is deducted as employee cost before profit, it's not the profit.
not one mention of what happens when the stock starts to go down after a buyback
What happens then
@@AliA-by2ju the company bought it's shares at let's say 1000$ a share. Then the market plummets (600$) and this share can't be sold at the same or higher price. It's a net loss for the company (1000$ - 600$ = 400$ loss). Basically corporations gambling their own profit. I'm sure the board members were betting the prices would continue to rise and they would sell their own stock for extra profit.
The bad thing is investors thought they were buying quality stock, instead it ended up being just junk stock. And that's from big corporations which were estimated as low risk investment.
@@lamcho00 thank you
What a good video! Thank you sm
Very informative🤒
Nice timing WSJ.
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Perhaps the best video on TH-cam about stock buybacks
Great content
My friend was telling me about this today.. TH-cam algorithm >>
Zeitgeist
Yeah!! This period of time is right.
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Stock buyback = Stock bubble
Thats all.
But WSJ doesn't say about the credits that spend in the stock buybacks.
Funny coincidence that board members who vote for buybacks are also some of the largest individual shareholders, mostly via very stock option compensation they also voted for themselves
Very useful, specially on a young investor
The money spent on buybacks dont just disappear into the oblivion, it goes right back to investers who put that money into other company.
Sometimes a company has reached their limit of growth, where they dont really need any more factories, workers, ect. In that case, the money would justsit there, unused. A stock buyback gets this money back onto the market, reinvesting and that is why they aregood for our economy
This aged well. If American companies are so powerful, why the bailouts?
Are these stocks being retired or are they being counted as assets?
Please make more such videos @WSJ
No mention of QE 🤯🤯🤯
So you’re just not going to mention how they used to be illegal because it was a form of market manipulation? Yeah maybe do better next time.
You actually expect unbiased reporting from a paper called WSJ?
0:40 Skeptics (critics) say the money used on buybacks can be better used by companies for other purposes
0:50 Proponents (supporters) say buybacks put money where it belongs: to shareholders
1:12 Tax cuts in 2017 and low interest rates
1:34 Return money to shareholders: dividends and buybacks
2:02 Buybacks boost Earnings per Share (EPS) because the same earnings now belongs to fewer hands
2:08 EPS = Company Net Income / Shares Outstanding
3:05 Skeptics say buyback money would be better used to grow the company
thank....so much..!!!
Funny that none of the options listed at 1:25 involved giving back to employees. How bout bonuses or wage increases?
Fernando D if you had seen the video until the end, you would have seen that they talk about higher wages and retirement benefits
3:30
It's called Salary.
"There is no sign that it's about to change". Idk about lol
Buying on leveraged loans on adjustable rates
How are these data visualised, i want to know and learn
Buy back being possible in itself is a joke
You have huuuuge conflict of interest
"Okay, you can buy your own stock to make it look better" no way someone will abuse this right?
Also, they take out on debt, and then they get BAILED by the government
Yet when we say the government should use spend that money on treatment for diseases those companies cause we get called entitled lazy and "stealing from the successful'
Exactly
Look at the airlines now 🤷🏾♂️
I just see buybacks as a company paying off some of its debt. The money spent goes to the former shareholders who sold their shares so they can reinvest it elsewhere or spend it on their needs.
Yup, i said this about a year ago and nobody listens. Buybacks are great for artificially raising share prices. Also that's not including mounting corporate debt which further skews the numbers.
How arrogant of you to say. This has been discussed and largely agreed upon by people who's say no longer seems to matter...that's you and I
There's nothing artificial about it
stock buybacks could lead to the next overvaluation of companies
Kevin Kang already there bro, stock price goes up, up and up!
Companies don't buy back shares for more than they are worth on a P/E or P/B basis (company Boards would not let that happen as they don't want to be sued), so buybacks can't over value a company. Only ignorant investors, like those who own shares in Tesla, a structurally unprofitable company, create overvaluations.
If the company doesn’t find any good use for the money, and they want to give it to shareholders, isn’t dividends better than buybacks then?
The argument is that dividends are taxable while the buybacks are not
@@wallacewoodworks9582 but buyback is on paper, no money flows to the stockholder. Dividend is real money to stockholder. Buyback is used to inflate or prop up share price so the execs get bonuses
will liam oh I agree, I would prefer the dividend personally. Just sharing the case for buybacks :)
Disappointed that higher wages as a use of cash wasn't mentioned until 3:30 because that's Central in this debate
I thought buybacks give stockholders a capital gain instead of a taxable dividend. WSJ didn't mention that. Am I wrong?
No, that's correct. That's one of the major reasons companies do it
when company has flush it can invest in political parties or deposit in swiss bank
Nowadays, stock buybacks are just another way to redistribute wealth to upper management. Most of the buybacks don't return them to investors since they just prevent the further dilution of stock value buy essentially buying back the stock options given to senior management. So the most of the benefits to retail stock holders is just not further diluting their shares instead of giving retail shareholders most of the benefits. I'll be impressed when the buybacks have a better effect on the existing float as opposed to just offsetting the options being showered all over the senior managements
"Did you know that stock buybacks were illegal until 1982? It's true. The SEC, operating under the Reagan Republicans, passed rule 10b-18, which made stock buybacks legal. Up until the passing of this rule, the Securities Exchange Act of 1934 considered large-scale share repurchases a form of stock manipulation." First thing that came up when I put stock buybacks history. Wow.
If a company buys back shares, and the stock still goes down, does that mean the stock would've been even lower had they not purchased their own shares?
I know of a company who reported buying back shares this past quarter, but this past quarter their stock is down -15%.... so would they have been down -20% if they hadn't repurchased?
Stock buyback is what cause this recession. Cov19 is the needle that pop the bubble ,not the cause
Huge tax incentives hence why you see so much in the fourth quarter
My company is closing operations and furloughing workers like crazy for the main purpose of making the share holders more money. Since they started last year they have furloughed 10% of the workforce with what looks to be another 20% this year. Thats over 14,000 people let go. Yet the last quarter of last year they made 1.6billion in profit after buying back 1.1billion worth of stocks. With all that greed no wonder we were voted the worst company to work for last year. But they don’t care, since their pockets are stuffed.
So do you have to sell it back the the price they are asking?
Stock buybacks always usher in recessions. It's not the cause though. An overheated economy makes return on CapEx lower. So, they can either hold the cash, pay it out in dividends, or buy their own shares. It's just a rational management decision when it's legal. Make it illegal.
*i was reading the intelligent investor and it was interesting to hear grahams thoughts*
@Combatant Analysis i would for sure!
Why is your letters fat?
PRESIDENT - He bolded them
@@theradicalaxe553 No, because he is black and fat.
@@president-8253 why racism on such a topic ?
AWESOME
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COVID-19: Let me introduce myself 04:30
Buying stocks back to just resell later here in a year or 2.
James they could just issue more shares without buying back
MORSE Don’t you have to pay capital gains tax when you sell the shares (in the buyback) which would include the premium above the market price that is ordinarily offered in share buybacks?
the workers basically get zero
No, they get their compensation package, same as before
How do companies decide who’s shares to buy from during a stock buyback?
Lol there are always people and brokers selling shares on the open market.
Why even invest in R& D when a bailout is always an option. Buybacks favour executives who usually have share options attached to their contracts at set prices.
Bailouts aren't an option for most companies. The Feds only use them on companies they believe will cause suffering if they fail.
Stock buy backs don't destroy money, they just transfer it. The stock seller decides how to spend it.
I would imagine that they won' invest it into the company whose shares they just sold.
@@Tamperkele So? If it's not the most productive use of their money, then they _shouldn't_ reinvest in it.
@@PrezVeto Of course, but selling the stocks isn't the problem here. It's when firms choose to buy back their own stocks instead of investing that money back into the business.
Your comment is pointless. Nobody said that fool. You aren't clever
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The buyback decrease the floatshare or the outstanding share?
Well, they also then have to pay fewer out in dividends. It makes sense.
What about paying the employees, from whom the business derives value?
Is that too scary to mention?
So employers are not obligated to pay employees?
Didn't know Milty advocated slavery too..
0:20 see any similarities between 2007 and 2019?
Yup it's gonna happen again and I Will be here benefitting from it :))
Magix why’s that
@@andrewd9387 house prices go down and and People need to sell The house to not go bankrupt and im here to buy that house reqlly cheap and sell it expensive 10 years after
@@magix4152 it's nice to look at it like that but your pfp suggests you aren't a Mr money bags real estate investor
@@PixelBoyMiner i like how u can see All of those things just from a profile picture :)
I'm sorry but the music sounds so much like The Sims LOL
For all the people saying that they didn’t even included: « giving back to employees/ higher wages »: they did, watch the video until the end please ! 3:30
You guys are late to cover the topic.
Stock Buy Backs were an illegal practice about 30 years ago. The reason being . . . it was considered to be a means of stock price manipulation. This WSJ piece whitewashes the practice.
Alcohol was also once illegal. Is a documentary about alcohol a "whitewash" for not mentioning the reasons of the temperance zealots?
@@PrezVeto Slavery was once legal . . . does that mean we should go back to a bad idea?
Of course not! Because in an honest wholehearted analysis, ALL the moral and ethical implications are addressed. Nothing is left out, or whitewashed.
Well when CEOs have bonuses worth 10x their annual earnings if they can raise the stock so much what do you expect to happen
Underneath the question of Stock Buybacks is
the question of companies being able to buy stock in the first place, and underneath that is
the question of corporate personhood.
pImp Up oUr MARKET!
as an AAPL investor. I love buybacks.
Since when did fraud become legal?
"Another worrying sign is buybacks have coincided with a rise in corporate debt levels"
Get back to me in Q2 2020