Exposing The Big Lie About Stock Buybacks
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- Опубликовано: 16 сен 2024
- Ed Yardeni joins Michael Batnick and Barry Ritholtz at The Compound to explain why we're looking at the wrong data all wrong, what the real data is, and what it means for the current narrative surrounding share buybacks.
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Once you actually start trading live and start to have profitable weeks/months. This kind of video will really start to make sense. So if you don't think it's helping you now, just come back when you're knocking on the door of consistently profitable.
100% right. The number 1 reason traders lose money is trading too large of a position due to no concept of risk management and money management. Here’s a tip. Imagine EVERY trade you initiate has a 30% chance of winning and 70% chance of losing and bet accordingly. Do that and I will guarantee you will start to see progress in your trading.
I know traders that lose 70% of their time and still don't make money, basically all due to killer money management. This i think has hit the nail on the head.
@@danielkey1463
"how can i connect with MARGARET?."
@@raymondbarnes5264 Run a search!!
There's a HUGE element missing in what's being presented here. The shares that employees get goes straight into their pension funds, and those shares can't be sold until the employee retires and then takes control of their assets. The shares that board members are issued are fresh ink still wet off the printer and sold immediately into the open market (basically printing money). Further, those buybacks are funded through corporate bonds, literally leveraging the assets of the company so that by the time the regular employees have a chance to sell their shares, the company will be in the dumps (as will the share price).
Thank you. These guys ignore that which makes them uncomfortable.
I'm so glad other people see this!!
I don't understand - if you're supposedly right, doesn't that just mean you can be a millionaire by shorting all of the companies that are doing this? Just short all of the companies that you believe are doing this and collect your money when you're right. You seem to have an unfounded belief that you have extremely strong predictive power about the long-term share price of companies that participate in stock buybacks, but I see no hedge fund that you're sitting on that's making millions of dollars of said prediction, all I see a YT comment. If you can't make money, that means you can't predict the stock price, so the claim that "the company will be in the dumps (as will the share price)" is just unfounded, especially if you won't put your own money on the line. We need screenshots of your portfolio packed full of shorts on companies that are supposedly doing this. Otherwise this is yet another "armchair analyst"
@@johndirac6707 Hey John, you're right, no one knows if these companies will for sure fail or succeed.I think you're misunderstanding his point though. He's making the point that there is a disconnect between the c-suite and the 401k. Employees will be holding their bags long after the executives have moved on or been fired, etc... So there is a conflict of interest between the long term and short term goals of each party. Look up how many executives have recently left their jobs.
Many of these companies with trashed balance sheets would have absolutely gone under recently if it were not for all the stimulus, and we're not out of the woods yet. Do we want to reward that kind of decision making? First was the liquidity crisis, then most likely will be the solvency crisis.
@@johndirac6707 Ask the same question to anyone who's done analysis of the company Tesla, and see how trying to short Tesla has worked out for them. Fundamental analysis doesn't work anymore. Companies that have a business model that does nothing but lose money have billion dollar valuations. 2008 was the year of the bank bailouts, 2020 will be the year of the corporate bailouts. I made my comment 5 months ago, yet only RECENTLY did the fed announce they're gonna buy corporate bonds.
Maybe I’m a little dense but what was the answer to why companies return all their cash to shareholders at the same time that they nickel and dime their employees? All I heard is blabber blabber tax shelter. And you wonder why there is discontent?
Ah, the poor employees that don’t own the company.
This is accurate. I made the same observation with my company's stock: management is compensated with stock creation; the company buys back shares every year; but total outstanding shares is virtually unchanged. And part of my compensation and retirement benefits is stock. It's just true.
and again, if you're here saying that your company effected a buybacks and the amount of share outstanding remained the same, I don't what world of finance your company is trading in. Lol...Finance 101 in need here.
@@winifredfowler8665 So basically you're telling us that you'll be a billionaire? Because I'd love to see you short all these companies if that's your legitimate belief - buy long-term puts if you're so sure of your opinion! There's a significant difference between an armchair analyst spouting narratives, and actually having a real actionable prediction that you can turn into money if you act on it. The markets will give money to any oracle, if you so claim to be one. Other than that, your prediction means nothing. Your narrative seems emotionally invigorating, until you realize that it's baseless because you probably won't make money on your shorts if you actually opened up your brokerage account and tried to short these companies.
touch bizarre to say buybacks are "democratic" because 1/3 of people that work at a publically listed company own stock. ie the majority own nothing, and the majority of those that do own a tiny amount so as to be almost inconsequential to their household wealth. those that benefit the most are c-suite, and they're the ones deciding their level of compensation.
Like he said in the vid, I think he needs more data. Would love to see the actual compensation breakdown of several big companies and see how his narrative stacks up against it.
@@charbrew371 to call it democratic? i'm afraid I just don't agree, the data he presents shows quite clearly that the effect of buybacks is concentrated and definitely not "democratic".
66% doesn't basically. Like dalio sais it's about the bottom 60% of people that r getting mad.
everybody have an option to buy stocks in USA - just less phones/cars/real estate. Its choice.
@@user-rs5hb6gd8e It does not make sense to compare something optional and akin to gambling, to basic needs. It is a meaningless analogy.
I think buybacks were illegal until 1982. Buybacks were illegal throughout most of the 20th century because they were considered a form of stock market manipulation. It seems to me it introduces yet another avenue for high level corporate malfeasance - as if there were not enough already. Just pay the employees more money or give bonuses from profits commensurate with fair wages. That makes for a cleaner more transparent market. If employees want to invest in the company, there is nothing stopping them from buying stock.
this way employee will earn less money due to higher taxation.
@@user-rs5hb6gd8e This is not the case. RSUs are taxed as earned income in the year they vest, and the market value of the shares determines the amount of taxable income. Essentially, from a tax perspective, RSUs and cash are equivalent
I like dividends more than buybacks. Buybacks will increase as long as its legal.
buybacks are more beneficial for shareholders from tax point of view.
@@user-rs5hb6gd8e Still kinda unpredictable. Even giants can lose their asset value
Buybacks and dividends are fundamentally the same thing. If stocks return 7% real, your reinvested stock buybacks should increase your net worth faster than if you received the same amount in dividends. About 15% annually.
He’s Looking at the wrong set of data. Need to specifically look at the subset of buybacks that are financed by issuance of debt and balance sheet leverage and see whether those are positively correlated with the bull market, which they are.
r64g that is interesting. Are you able to explain that a bit deeper, please?
its kind of logical that if company sells a lot of stuff during good times, company can pay high wages and pay dividend/buyback stocks. During bad times company lay off personnel, dont pay dividends and didnt buy back stocks. Bad things happen when company take loans to pay wages/dividend/buyback stock.
@@user-rs5hb6gd8e Companies are experiencing one of the worst earnings recession, the buyback craze is an effect of Trump's ill-fated tax cuts, and have taken place during bad times.
ruclips.net/video/MM1IbJk06go/видео.html
www.marketwatch.com/story/its-official-the-trump-tax-cuts-were-a-bust-2019-01-30
There's no such thing as a buyback that was financed by issuance of debt. At the end of the day a company will have some tens of billions of dollars in revenue, and some tens of billions of dollars in expenses. Some revenue might be sales, bond issuance, and public offerings, and some costs might be compensation, buybacks, and interest. Which revenue pays for what expense is an exclusively emotional analysis done by households and the middle class or governments, not a logical analysis that has any fundamental meaning in the corporate or financial world.
Take a look at American Airlines. Negative cash flow from 2010-2019 of 7B, buybacks of 12B. Then beg for a bailout. This is the danger.
So let me understand this. C-suite executives are piling on corporate debt in record amounts to push stock prices higher (and their bonuses) but that this is largely offset by the fact that they are pumping ever more of these inflated shares into their employee pension plans. Consequently total outstanding market share float has only declined marginally over the past several years. So no problem here, just move on, it's just capitalism at work says Mr. Yardeni. Jeez.
I have known of Mr Yardeni for some time, and I offer these comments in all respect. I don't know just how much Mr. Yardeni has tested his conclusions... I wonder if he may have jumped to an inappropriate conclusion. I believe he mentions ESPP programs... but such programs don't give away stock. They allow regular employees to buy stock at a discount... from 5% to 15% usually. This is not compensation at 100% of share price, it's a modest discount such that the employee receives, perhaps 10% of the value of the share (depending on market activity, etc.)
Then we get to the areas I don't believe Ed (nor I) have any evidence for. I believe the net cost to the corporation for ESPPs is immaterial next to compensation-driven purchases. I also believe stock compensation is hugely skewed to the top 1 or 2 percent of executives in most corporations (small start ups were once the closest thing to an exception, I'm not close enough to that space to say if that's still true.) It's not going to some wide swath of valued employees (say, the ones who received the highest scores in employee evaluations?) Some buybacks may be utilized to support such programs (though I remember no discussion of new stock issuance, which could also be used to provide such shares). However, the vast majority of stock compensation is issued to executives, in my experience. If you take the total stock grants and options I've received over ten years, multiply it by the hundreds of thousands of employees you may find in a modern multinational, it's not even a year's worth of share issuance to a single officer in my company. Unless you are a V.P., maybe a Director, that benefit - for the most part - is not going to you.
I find it hard to avoid the conclusion that buybacks are just a way to provide tax-advantaged compensation to execs - at multiples of employee compensation that are so high and so divorced from company performance that as an investor, I really, really want to sue every company board in the US for malfeasance.
Back to anecdote isn't data, so maybe other folks have different experiences. I would just say, as someone who often has to create analysis from limited data, I am looking askance at the conclusions drawn by Mr. Yardeni.
If you look at a company that offers buybacks you will find the stock based compensation expense is low. However if you look at companies like Chamath $work, stock based compensation is through the roof.
Curious to know what percentage of shares bought back for ESP actually reach the program participants, given that most are structured to take several years to fully vest. If George leaves Spacely Sprockets before 100 of his shares have fully vested the company keeps them, I'd assume.
It also bears mentioning that typically ESP participants also pay a percentage of the shares they decide to acquire--the company usually doesn't give them away gratis.
I'd argue that the Fed's lowering interest rates to ultra-low levels has not only made it possible to do leveraged buybacks, but it's also lowered the hurdle rate for corporate investment, which makes the low ROI from buybacks look more attractive compared to other, more productive investments. Not a fan of banning buybacks, but I do wish much more of that was put into dividends or reserved as cash on the balance sheet so that companies have more cushion during downturns.
The main issue with buybacks is that the management is allocating the capital on behalf of the shareholders,rather then distributing the cash as dividends
I would prefer no dividend. No buyback. Look at Amazon: no buyback or payment of dividend. They just keep buying more property, plant, and equipment in order to keep the revenue and operating cash flow growing.
This is all fine and good if the stock compensation is evenly distributed through all tiers of the corporation. My gut feeling is that most of the issuance is more top heavy. Sure, there is a spread but you're not telling me that a middle manager is getting anywhere near the options issued as a C level manager. So at the end of the day, it's just another way to literally pump billions/millions into upper management's pockets at the expense of the retail investor. Instead of most of the gains going to us, it is going to their pockets I would love to see the mean issuance and not the average. We all know the old joke, I am in a room with Bill Gates, our average net worth is....
In quarterly conference calls, management itself calls stock buybacks "returning cash to shareholders." It seems to be the way they look at it and not only the interpretation of some urban legend.
Buybacks are primarily to benefit the top. Giving scraps to the rest of employees is for optics.
Thank you for editing in the charts
Let's look at the facts, this is all about facts......facts, facts facts, not a word on the facts about who's getting what percentage of those stock options. ???
All tech companies compensate their employees with large amounts of stock. Take for example GOOG's supposed 'buyback' barely covers the shares they give to employees.
Exactly, ita great way for management to reward themselves. Because the outstanding shares don't go down.
The title is click bait. The guy basically said most buybacks are given to employees to stop dilution. He did not look at NASDAQ that use to dilute 1% a year.
more relevant than ever during this period where corporations are asking for bailouts
Haha. Boeing is the poster child for destroying capital by buying back shares... They are asking for a government bailout right now. They have spent $34 billion on buybacks over the last 5 years. They also spent $17 billion on dividend payments. They only generated $32 billion in free cash flows. Horible management at boeing..
@@roblop6322 My thing is were Boeing's buybacks used for employee stock compensation?
@@karanarora28 yeah. Part of it was to offset dilution from employee stock options... bad management... revenue dropped by $24 billion in 2019 and they were still giving stock for bad management... bs.
@@roblop6322 Still though, if it’s for employee compensation and offsets dilution that somewhat defeats the narrative that these buybacks have only been used for Wall Street.
So, stock issued as employee compensation dilutes the value of existing stock. Corporations use profits to buyback existing stock to neutralize this effect. The only issue seems to be, who are the holders of stock that benefit from this? We're told in this interview that it is 'rank and file' employees in the corporation, so relax. Hmmmm .. that seems like an assumption open to examination of the actual data. Did I miss that part?
Let's bring in Leon Cooperman to tell us again how much 'tax-write off' good he is doing for society. It could be a chorus.
I wonder to what extent Mngt uses these compensation buybacks to help meet analyst 10Q/K EPS expectations...
That’s a very short time frame. A seven-year study compounding aggregate data on the Market is comprehensive but nowhere near enough.
You don't dilute shares when you but them back... he's full of shit.
I'd suggest that Ed Yardeni looks at the work that's done by Dr. Ben Hunt on share buybacks to get a better understanding and it would nice if the The Compound can get Dr. Hunt for an interview to get a different picture than the one that Ed is presenting. Executive management receive over 95% of these buybacks and not the employees as he claims.
ruclips.net/video/hJcgv9MZcW4/видео.html
Can confirm, in any decent software company you get at least your base salary in RSUs on sign-on vested over 4y and a refresher each year depending on your performance vested again over 4y (to keep the carrot in sight).
Share buybacks is very beneficial to all those who invest in the company. Share dilution is only beneficial not to take on more debt.
Great interview. But it doesn't change the central fact - companies still do buy back their own shares. Sure they don't do it for manipulating their EPS. Rather, they do it to compensate their employees. That's good. But they are still buying back their shares. Or did I get it wrong?
He's disingenuous
Be nice to see the research that is being talked about. How about adding links to conversations mentioning so many angles and numbers. It would be nice for me. Talk without data is common place. I get the sense this channel is above common. Thanks for reading.
I'm a science guy...and just now learning a little about economics and stocks. After first hearing/reading a company is able to buy back its own share, my brain exploded...."Wait what? But how does.."
These guys could make this much simpler
The percentage of people who own stocks compared to those who don't. Probably around 10% of the population are getting richer while incomes were stagnant since the 70s. Everybody else hasn't got as rich as they were after WWII to the 80s when there were unions and no stock buybacks. They could pay for healthcare and raise wages and pay more taxes as they were in the 50's and 60's as the tax breaks continue to cause the debt to go up every time Republicans pass one. Reagan, Bush2, and Trump added trillions to the debt.
He is assuming companies give employees stock options. Not true. Some of the most profitable companies don’t give stock options to regular employees.
I love stock buybacks and have been able to beat the market by 5% focusing on them.
ENRON.
In-Breeding: This reminds me of that a lot - wrong all the way.
Sounds like 3 stock holders trying to convince themselves the buy backs have nothing to do with the stock going up, debt going up and company performance being stagnant if not going down.
If this is indeed true, why is it not mainstream news ?
I can't really understand why an employee would rather want stock rather than cash? Stocks go up but also down, cash is consistent.
lol cash only goes down my friend
MikeUChannel bc employees feel they can contribute for the stock going up. Also the exercise prices are generally low. Besides this rational reasoning there is also a bias I’ll say when you are embedded in the culture of your corporation you only expect that good things will happen!
Buy backs are responsible for everything wrong with the stock market? Yeah, right… 🙄
This video was helpful thank you guys
Same old same old ... these guys are not honest about buybacks ... give the investors their dividends. Buy and hold investors in 401K'S get screwed... they cant sell after the pop like these guys do.
the compound, my FAVOURITE investment podcast!!
Superinteresting!
This is great news then. Buybacks are going directly into the economy if the majority of it is essentially funding employee comp.
When Ed talks we had better listen !
You guys aren't monetizing your content
14:20 is the dumbest comment i've ever heard. He is arguing that companies are paying partially in shares. Ok that's fine, if they want the stock pay them their wages that would have been in shares in cash, and they can buy the shares themselves. It is true they buy back to avoid dilution, but that is to benefit C level executives, not the average worker. This is all bullshit.
That was awesome! Great to see a data based investor!
this guy is full of it
Ed Yardeni has been around a long time. He is a serious person and his track record is quite good. Take a look at his blog, entitled Dr. Ed. It would be a mistake to summarily dismiss his observations.
@@apga1998 Maybe it is time for him to retire.
DENOMINATOR BLINDNESS LOL GOOD ONE
Wow this obvious. Buy google before the employees get it, built in carrot.