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Thread: Share buy backs

  1. #11
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    Snoopy has explained it well. At least we are in agreement

    I do assume everyone knows that the opposite of a share buyback is when the company issues more new shares (creating the opposite effect of 'share dilution' = your % of ownership erodes and likewise the share of the profits).

  2. #12
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    I understand the theory of this is logical, but it has never struck me that the price of shares is logical. It's driven by all kinds of fear/greed quotients/irrational tweets by prominent players, etc.
    The present inclination of companies in the USA is to buy back their own shares, rather than distribute dividends, thus increasing corporate wealth and distributing even less to the average punter. Done on a large scale it is channeling wealth into the hands of a small percentage of people and reducing the monetary merry-go-round that supports participation in the economy..

  3. #13
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    Quote Originally Posted by Jerry View Post
    I understand the theory of this is logical, but it has never struck me that the price of shares is logical. It's driven by all kinds of fear/greed quotients/irrational tweets by prominent players, etc.
    In the short term you are probably quite right Jerry. The argument is that in the long term 'time' and 'rigorous analysis' will even out the daily market gyrating hype.

    The present inclination of companies in the USA is to buy back their own shares, rather than distribute dividends, thus increasing corporate wealth and distributing even less to the average punter. Done on a large scale it is channeling wealth into the hands of a small percentage of people and reducing the monetary merry-go-round that supports participation in the economy..
    You are correct Jerry if the shares being bought back are from the 'Mum and Dad investors' and those that don't sell into the buyback are 'Big Corporates'. But is that the case?

    SNOOPY
    Last edited by Snoopy; 19-06-2019 at 09:03 AM.
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  4. #14
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    Quote Originally Posted by Jerry View Post
    I understand the theory of this is logical, but it has never struck me that the price of shares is logical. It's driven by all kinds of fear/greed quotients/irrational tweets by prominent players, etc.
    The present inclination of companies in the USA is to buy back their own shares, rather than distribute dividends, thus increasing corporate wealth and distributing even less to the average punter. Done on a large scale it is channeling wealth into the hands of a small percentage of people and reducing the monetary merry-go-round that supports participation in the economy..
    I'm not sure if you do understand the logic of share buy backs. But since we're in NZ and like most share investors in NZ (that prefer dividends than tax free capital gains), let's assume corporate America did issue dividends instead of buying shares. So all these mom and pop small investors will get a pay. Then what? Gloat that the company they own shares in paid them a cheque while the share price remained the same (re: book value tied to market share value)?

    If you say it's greed, then certainly companies like Apple will continue to incorporate in tax preferred nations, to never bring their operations to America because corporate taxes are too high. Done on a large scale, you'll find America will not produce anything. Ingenuity given away to places like China. But we can compare all these differences until the cows stop mooing. The US will always have a higher standard of living than NZ and it's well reflected in the strength of the USD currency. Investors foreign and domestic know that the whole world trades in the US equity market. If this wasn't the case, then the US would have a weak currency. (like we're seeing in NZ).

    I've posted in other threads. The investment view in N. America differs greatly than the investment view in NZ. Unlike in NZ, small investors believe in being in a PARTNERSHIP of the company they bought shares in ; and not a landlord where they expect routine rental (dividend) payments. The small investor if not inclined to sell their shares will reap the benefit in higher share price. It might be a tough view to understand; at least from my observation, N. American investors know capital gains tax is a lot less than dividend income tax, and before we compare to NZ, not ALL NZ listed companies have full imputation dividend credit; the vast majority of them issue dividends at RWT. Some food for thought in this link

    Link "https://www.interest.co.nz/business/...reholders-says"
    Last edited by SBQ; 20-06-2019 at 05:32 PM.

  5. #15
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    I've heard of companies buying their own shares back as a defensive play against hostile M&A activity as well, but not so much in NZ. I've always seen a buyback as a good sign that the management have confidence in the value of their company, or that it is undervalued by the market. MET is a good current example with a NTA of 6.96 and a share price around 5.85.
    Disc: holding MET
    No advice implied, novelty purposes only etc etc...

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