A stock buy-back increases the stock's value through scarcity. It does not actually "return cash" in any immediate sense. Any value increase is completely on paper. The holder of the stock is still taxed when they sell their shares.
This is the same concept as you owning a home and someone builds a nicer home next to you. Your home value just went up. But you don't have a cent of that money until you sell your home, and then you are taxed on the gains (unless you roll it into another home, but that's a separate discussion).
Buyback programs are at the then-current publicly traded rates. They aren't generally at some magical premium, or else the whole trading price of the stock would go up even more.
Most people selling their shares in a company do not know who is on the buying side, and that is generally the case here. This goes for retail and institutional investors. And the buy-back programs are done slowly to avoid slippage, which can make it even harder to track down in the moment.
Someone who wanted to sell was selling anyway. They don't profit any more than their gains (or losses) already covered. The people who get "value" are the ones who did NOT sell their shares, and their "value" is only realized down the road when they do eventually sell.
I appreciate the lesson, I spent my whole career as a hedge fund trader so I’m familiar.
I’m not sure what this has to do with anything? Why does it have to be at a premium? What in gods green earth are you on about? What difference does it make if you know or don’t know who the buyer is??
Those who want to sell can sell (buybacks are programmatic) and those who don’t can benefit from appreciation.
> Who do you think they are buying the shares from? It literally directly puts money in the pockets of investors.
He's trying to explain to you why stock buybacks don't "literally directly put money in the pockets of investors". If your shares are sold back to the company as part of the buyback you are 1) no longer an investor obviously, and 2) have not realized any gains as a result of the buyback. Investors who did not sell see their shares appreciate, which is different from "putting money in their pockets"
Seriously? You’re going to defend someone’s complete lack of understanding of market dynamics by making a pedantic stand that someone who sold their shares no longer qualifies as an investor?
Well for one, that presupposes that investors sell all of their shares at the same time, which they rarely do. So, I have 100 shares and I sell 10 back to the company. I receive 10 shares worth of cash directly from the company and I still have 90 left thus qualifying me as an investor under your definition.
And secondly, your entire premise is absurd. By your definition, a dividend isn’t a company returning cash to investors because by the time they issue the dividend, it’s no longer their cash, it’s the investors.
You guys just don’t understand this stuff. The real world just doesn’t work the way you imagine it.
> Can you answer the question "who gets money literally put in their pockets as a result of a stock buyback?"
The investors who sold the shares to the company. Markets aren’t some magical entity that conjure shares out of thin air.
If a company buys back 10 shares, they buy those 10 shares back from an investor who wants to sell 10 shares. That investor now has cash literally in their pocket.
How do you think this stuff works? Where do you think the money goes when companies spend on buybacks?
The investors who sold shares to the company did so at the then-current publicly traded share price. I bet they wish they didn't since the stock value increased after the sale. These investors who sold did not benefit from the sale any more than they would have selling on the open market in a non-buyback situation. Hope that makes it clear!
This is very naive, in incorrect. The stock market goes up on average…investors know this. When they sell it’s usually because they need cash, or they believe there is a better use for their capital. Most people who sell stocks do so knowing that it will continue to go up.
This also has nothing to do with returning cash to investors. They were going to sell the stock anyway. Who cares if it keeps going up? It has nothing to do with the mechanics of a buyback.
> These investors who sold did not benefit from the sale any more than they would have selling on the open market in a non-buyback situation.
What in the ever loving Christ? Why does this matter? You guys just keep moving the goal posts. This simply doesn’t matter and I’m not sure why you guys get hung up on it. Shareholders love buybacks. Why does HN think they have figured something out that millions of other people have missed. It gets so tiring going in circles.
trading is zero sum. The investor that sold the share would of sold the same share to another investor. The company isn't buying stock above market price (thus adding value to the system).
The company may stock buy back directly from employee's RSUs, which are taxed as income.
> The company isn't buying stock above market price (thus adding value to the system).
That’s not how this works. Where is this focus on “adding value”? What the hell does that even mean?
Just take this to its logical conclusion: let’s say a company buys back 100% of its shares. In this case they have returned a ton of capital to investors very tax efficiently, and price will converge on whatever price the very last seller is willing to sell at.
I don't think it's accurate to say "you don't have a cent of that money until you sell your home".
Nobody has anything valuable until they transfer some cash to receive that thing. The potential to transfer X for Y is valuable. Not to mention borrowing against one's assets.
>"I don't think it's accurate to say "you don't have a cent of that money until you sell your home"."
That's a bit different, as you generally reap some ongoing benefits from owning a home, such as an income stream (rent) or place to live (savings on rent, which aren't usually taxed), which you don't get from owning stocks (other dividends, which are taxed, and the benefit of voting if they're voting shares).
>"Nobody has anything valuable until they transfer some cash to receive that thing. The potential to transfer X for Y is valuable. Not to mention borrowing against one's assets."
We generally don't tax things that have the potential to increase borrowing power (because of that thing alone); we don't tax high credit scores or educational status/attainment, or changes in either.
This is the same concept as you owning a home and someone builds a nicer home next to you. Your home value just went up. But you don't have a cent of that money until you sell your home, and then you are taxed on the gains (unless you roll it into another home, but that's a separate discussion).