Apple's $62.9 billion stock buyback program called a bad investment in new report

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  • Reply 121 of 152
    GeorgeBMacGeorgeBMac Posts: 11,421member
    tmay said:

    gatorguy said:
    @carnegie ;
    I had not seen your previous reply until prompted by this latest one. I'm not certain if it was there before I began typing my reply to Radar, so apologies for asking for it again.

    I generally agree with you that trying to "revise history" in order to compare the outcome of two different actions also would fail at proving which was the better path. Combined with my own reading on the matter I'll accept your opinion as well that there's no clear answer as to what specific effect the stock buybacks have had on the price of Apple's stock today. Could there have been a "better" way to reward investors. You and I seem to agree there might have been but there's no clan way to investigate other paths not taken.

    Regarding questions about the benefits of increasing workers pay, investment in plant and infrastructure, even reducing executive compensation, rather than using essentially "trickle down theory" from the top 1% as the best way to drive our economy forward: I'm in the former camp. IMO the financial instrument driven economy we've embraced has led to even more class-separation and wage disparity.

    BTW, before I continue I completely understand that no one is guaranteed a healthy life, a warm home, hot food or clean water so I absolutely do not endorse a welfare state and the traps that come with it. 

    But I also personally believe when an ever smaller percentage of our citizens control a majority of the economic assets of our country that the choices they make will increasingly favor those around them and in similar circumstances,to the detriment of others who by birth, location, or other factors not of their making are not considered.

    Playing the long game the current hoarding of assets, and the drive for more "profits" for nothing more than profits sake and at any cost will at some point become untenable, It has before, and often, relegating entire societies to no more than case studies in a classroom while almost no one pays attention to the teacher.

    The traditional US economic drivers are being supplanted, the most basic infrastructure is long past its expiration date in large parts of the country, social programs intended to prevent just the type of suffering we saw in this country during the Great Depression are on the verge of failing, and ever larger percentages of our assets are being amassed by an ever smaller percentage of the populace and that small segment holding the pursestrings has chosen to push payment down the road for someone else to deal with. Instead they pillage the fields for whatever assets our country's farmers and factory owners and stores and transportation companies managed to accumulate over the past 250 years and planting an inferior field of paper unable to advance the US economy as a whole (and our political influence along with it) as replacement...

    Corporate profits cannot continue seizing ever larger percentages of our GDP without repercussions. By definition if one segment goes up other segments must suffer in comparison and in the US that has been the wage segment which has fallen significantly over the years. 
     
    "Once you've taken care of yourself and your children, the best use of extra wealth is to give it back to society."
    Bill Gates. 

    He and Warren Buffett are both wise enough to recognise that the support structure that enabled them to prosper far beyond their needs must be replenished for it to continue. They are giving back what they don't need for the betterment of the society that supported them and their dreams.

    IMHO profit for profits sake will eventually kill the dreams for too many people and the tipping point will be reached...

    End of diatribe. 

    I'm puzzled that you appear to blame Apple for the very legislation that allows Apple to both repatriate its cash, and utilize it for the benefit of it's shareholders.

    Do the American people not take responsibility for electing Congress that created that legislation? 

    If reinvestment with that repatriated cash was important, why was there no legislation in place to force that to happen?

    Seems like Apple has been upgraded to the fourth branch of government, and is expected disburse its funds to directly benefit the people of the U.S.. not the shareholders.
    Putin (and his merry band of right-wing thugs) seems to have had a lot to do with that.
  • Reply 122 of 152
    melgrossmelgross Posts: 33,585member
    flydog said:
    melgross said:
    What happens is that the money goes down a black hole, while there’s no evidence that shares go up at all.
    Perhaps you're not familiar with the principle of supply and demand.  When there is less supply or more demand, the price goes up because buyers are competing for fewer shares.  This is taught the first day of any high school economics. 

    In addition, financial ratios such as price to boo, price to earnings, price to cash flow, etc become more favorable.

    Finally, do you really think any company would throw money into a black hole?

    The good news is that you appear qualified to be the next Chairman of the Federal Reserve.
    Very amusing. Perhaps you’re not familiar with the real world? For decades, since buybacks became legal, we’ve been promised that buying stock bCk would result in higher stock prices. There is no evidence that it happens. If you put some thought into it, you would see why.

    lets say that Apple has an even 5 billion shares. They buy back 100 million. That’s a lot of stock to buy back. What percentage of the overall stock does it represent? 2%. So spending say $200 a share, which was an average for much of the second half of the year, would cost $20 billion. If that causes a rise in the stock by 2%. We would see a who,e $4 increase. That’s not much, and it’s hard to see if it’s real. The stock rises and fallen by more than that for small reasons by itself. With all the buybacks Apple did this year, we can look to the current price and ask what part of it is due to buybacks? What, the stock is down /$80 a share? My, these buybacks were certainly helpful!
    GeorgeBMacmuthuk_vanalingam
  • Reply 123 of 152
    melgrossmelgross Posts: 33,585member
    lewchenko said:
    I guess the intention was that the buybacks would reduce the shares in circulation and thus the remaining shares would be of higher value. 

    It it would also reduce the amount paid out in dividends. 

    What they didnt factor in was the share price collapse. So shareholder value hasn’t exactly worked out well for those who hung onto their shares after they peaked at $227. A multitude of mistakes on Apples part and a series of timed articles to pull the stock down. 

    People on these forums say the analysts and WSJ don’t get it , and the stock is manipulated. Etc etc. The truth however is that they do get it.. the world isn’t fair and that the word of the media and analysts do indeed manipulate the stock, but that’s just normal and they leverage it to make money. No surprise there. Expect to be played if investing in stock. If you make money, chances are it’s only because some other heavy weight players are. 
    There are two camps.  Your comment reflects the thinking of the camp who measure their wealth daily and see a drop in share price as a negative.  The other camp, which I inhabit, along with others here, and Warren Buffett, is comprised of those who feel the only times the stock price directly matters to us is the day we buy and the day we, long into the future, eventually sell.  In the interim, periods during which the stock gets oversold, based upon misconception by analysts or global events and political folly, simply offers opportunities to acquire more shares and for the company to increase our percentage ownership through repurchase of additional shares. 

    Removing excess cash from the balance sheet via buybacks or dividend payments shifts the ratio of operating business to dead 1%-return cash, which means that each new dollar invested in shares is purchasing more of the cash-flow generating operating business and less static cash.  No smart investor wants to invest a dollar to see that dollar buy just 75 or 80 cents of operating business and 20 or 25 cents of cash.  We want to see that whole dollar working on the operating business side of the equation, and Apple understands this, thus its initiative to become cash neutral.  I applaud that, and am looking forward to hearing Apple management report how much they spent on cash return this quarter.  I’m hoping it’s a bump over the $20 billion they’ve been spending in recent quarters.  
    That’s really makes no sense. No matter what the excuse used, that’s still money that’s being thrown away, that could have served better purposes. Any supposed gains is, at best, ephemeral, and can’t be proven.
    muthuk_vanalingam
  • Reply 124 of 152
    melgrossmelgross Posts: 33,585member


    Stock buybacks don't stimulate the economy, just like profit doesn't stimulate the economy. It's all money that doesn't go into circulation. So if you're exploding the debt for the sake of something that doesn't stimulate the economy, what exactly is the point supposed to be economically? The whole thing is a completely cynical exercise. 
    It’s not money that goes into circulation?  Really? What then are those people who decided to sell their Apple shares doing, retiring that money, like Apple retired the shares?  Taking it out in the backyard and having a bonfire?  Of course that money goes into circulation.  Apple was holding it in treasuries.  The Apple shareholders were/are risk-taking investors or traders.  After they sell those Apple shares it’s unlikely their temperament is one that would have them stick the money into treasuries.  No, those folks are investing that money or spending it into the economy.  
    It’s not new money. It’s just the same money being distributed differently. Apple buys stock from some of those who have it. They get the cash, and usually end up buying more stocks. The money doesn’t really circulate in the economy itself.  It just ends up in different places. Apple isn’t buying from small investors either. It’s buying from large investment firms. The money, to Apple, is just being burned.
    GeorgeBMacmuthuk_vanalingam
  • Reply 125 of 152
    melgrossmelgross Posts: 33,585member
    carnegie said:
    melgross said:
    What happens is that the money goes down a black hole, while there’s no evidence that shares go up at all.
    Apple's stock buybacks don't look nearly as good now with the recent share price pullback. But they still look pretty good.

    In order to believe that the share buybacks didn't have a positive effect on share price, one has to believe that at its peak back in October Apple's market cap would have been about $1.6 trillion instead of $1.1 trillion if it hadn't done the buybacks and thus had around $240 billion more in net cash on its books. (We have to account for the extra interest it had to pay on debt or lost on cash holdings because it did the buybacks, but that's offset by dividend payment savings.) I don't think that would have been the case.

    Even with the major price drop we've seen recently, we'd have to believe that Apple's market cap would be around $1.06 trillion today instead of $.74 trillion if it still had that money on the books. I don't think that would have been the case either.

    A further drop in APPL's stock price, if it lasts for a while, might make the buyback program as a whole - or at least the timing of it in the aggregate - look like a bad idea. But as it is, it's pretty hard to argue that it hasn't positively affected the stock price as compared to having done nothing with those retained profits except holding them as Apple had been doing.  
    There is no evidence that these buybacks had any positive effect. It’s wishful thinking. It’s a shame they began to allow buybacks, I think it was, back in the 1980’s. Before that, a company couldn’t buy its own stock back. The practice should again be disallowed. Then maybe companies can think of useful things to do with that money that would benefit the company more, such as more R&D, increased manufcturing efficiencies, marketing, etc.
    GeorgeBMacmuthuk_vanalingam
  • Reply 126 of 152
    melgrossmelgross Posts: 33,585member
    brucemc said:
    A few things to consider:
    - Apple started to return cash to shareholders as a result of generating so much of it.  Their net cash position was well over $100B.  The iPhone phenomenon was bigger than anything before, and it was after the Jobs era when the bucket loads of cash started to pore in (for those who want to focus on Jobs' view)
    - A focused company - which, if you know anything about Apple, you know they strive for this - can only invest in so much at one time.  More money, past a certain point, does not solve a problem faster.  Anyone who understands product development and engineering knows this.  Things take time, regardless of money.
    - So there is excess, or free cash, and as you should know with Apple, it is a lot - about $50B/year.  Believe it or not, but high amounts of cash on a companies balance sheet is *not* considered a good thing.  People don't invest in Apple to gain a share of cash earning little money.  So that cash has to be dealt with.
    - Some would argue that Apple should go around buying numerous large companies (Netflix, Disney, Tesla) - and spend all of their money that way.  But for such shrewd investors, they should look at the history of large acquisitions to see how they turned out for company value.  Hint - it isn't pretty (something like 80% are value destructive).  Now think about Apple's culture and how that would work.
    - Or there is returning it to shareholders.  That can be with dividends (taxable in the year received) or buybacks with retirement, which reduce the count and increase ownership %.  Apple does both.  Apple has been raising their dividend on average greater than 10% each year, which is considered a gold standard.
    - Some may look at the buybacks as "burning money", but at the end of the day it is increasing the % ownership in Apple for remaining shareholders, and if you think Apple is a well run company, with great products, which generate money, and have a solid future - then that is a good thing.

    Melgross appears to be a successful investor, and as such his opinion has value, but while he has been skeptical of buybacks, I can't recall him making any suggestions as to how Apple should manage their excess cash.  For the cash levels that Apple is making, the choice is really huge dividends each year, buybacks, or large company acquisitions.

    Apple is not like many other companies performing buybacks, who are borrowing huge money to do so (arguing that it is OK with rates so low).  Apple only borrowed effectively against foreign cash, to have domestic funds for buybacks.  Their net cash position was, and is, strong.  With tax changes, Apple has access to its foreign cash at an acceptable rate, and no longer needs to borrow to fund its shareholder return programs.  Apple's buybacks are funded from free cash flow - not increasing net debt.  Hopefully people can understand the difference.
    Apple didn't start paying large dividends or make stock buy backs because they had excess cash.   They did it because activist share holders like Carl Icahn forced them to.   It was not a "business decision".
    In what way did Icahn Force Apple to do anything?  The only force he could apply was in the court of public opinion.  We all know that has little sway with Apple.  Nope, it’s far more likely your view of history is distorted than Apple bowed to Icahn. 
    You’re wrong. It was well known back then, because Apple told us that it happened, that management had meetings with him, and that resulted in Apple deciding to go down this road.
    GeorgeBMacmuthuk_vanalingam
  • Reply 127 of 152
    melgrossmelgross Posts: 33,585member
    tmay said:
    carnegie said:
    Apple didn't start paying large dividends or make stock buy backs because they had excess cash.   They did it because activist share holders like Carl Icahn forced them to.   It was not a "business decision".
    You claim to know something but it just does not hold up at all. Icahn had less than 1% of the company. Totally irrelevant. He also sold in 2016 when he had some profit and missed a 100% gain since then. In 2018, Apple increased the buybacks more than twofold and said it planned to get to cash neutral in the future. There was no pressure, they clearly judge it to be the best use of the money to create shareholder value.
    It was definitely Icahn who fought that battle and got the ball rolling.   But you are correct that he later sold out and the recent share buybacks and dividends have been all Apple's doing -- especially passing on the money from the tax scam to the shareholders.

    I was pointing out that, without Icahn, Apple would likely still be in the mode of reinvesting its profits rather than distributing them.   But, who knows?  It might have happened anyway.
    Reinvesting them in corporate bonds (i.e. loaning them to other corporations), U.S. Treasuries, mortgage-backed securities, and other such instruments? That's what it was doing with the profits it's now returning to shareholders through stock buybacks.

    I'm not generally a fan of (non-closely-held) corporations returning capital to shareholders. I think, broad strokes, the point of equity investment is that one believes that the corporations they're investing in make better use of that capital than one will themselves. There are lots of reasons why one might think that. But that's why you give corporations your capital (or give it to others who previously gave theirs to corporations). If you want your capital back, hopefully with a profit, you sell your shares.

    But a corporation can get to the point that it has so much retained profit that it makes sense to distribute it to shareholders. Apple reached that point some time ago. It wasn't going to throw an extra $20 or 30 billion a year into R&D just because, just because it had the money to do so. It reinvests (in the going concern) that which it thinks makes sense to invest, without regard for how much extra money it has accumulated. To do otherwise would be foolish. And spending large sums on acquisitions just because you have the money to do so would also be foolish.

    So what to do with a huge pile of cash? You keep what you reasonably think you might have need going forward, and you return the rest to shareholders. Apple would almost certainly have done that regardless of what activist investors (holding very modest portions of the company's equity) advocated for. It reached a point when it could no longer justify holding onto all of the cash it had accumulated, investing it in low-return similar-to-cash instruments. Small-ish dividends are okay, but - all things considered - the better way of returning large sums to shareholders is through buybacks. (I'm happy to discuss why that is.) So, if Apple thought its stock was undervalued, then it made sense to buy back shares.

    As for "passing on the money from the tax scam to shareholders": The money Apple has been returning to shareholders isn't from the tax law changes of 2017. It's profit that Apple has made over the last decade or so. It's profit on which it now has to pay more U.S. income taxes than it otherwise would have had to (i.e. without those tax law changes).
    Your namesake's company ultimately (as U.S. Steel) thought the same thing:  "We have too much cash, we can give it away".  And, largely because they failed to reinvest into their business, they could no longer compete and failed.

    As for the excess cash for the 2018 buybacks -- most came from the tax scam.   But Apple was far from alone on that one.  Interesting point on that one though:   Trump just announced the country can't afford to give government workers raises in 2019 -- I guess they gave it all away to Apple Shareholders. 

    Nice straw man.

    Apple's buybacks are in effect, and the direct result of, the Administration's repatriation plan. The lack of those government raises is the result of the Administration, not Apple,

    Again, I would ask how you believe Apple should invest that excess cash.
    No they’re not. Apple likely added to the amount they will be buying back in the latest round of buybacks, but you know that Apple already bought back more than $100 billion in stock before the tax breaks.
    GeorgeBMacmuthuk_vanalingam
  • Reply 128 of 152
    tmaytmay Posts: 6,439member
    melgross said:
    tmay said:
    carnegie said:
    Apple didn't start paying large dividends or make stock buy backs because they had excess cash.   They did it because activist share holders like Carl Icahn forced them to.   It was not a "business decision".
    You claim to know something but it just does not hold up at all. Icahn had less than 1% of the company. Totally irrelevant. He also sold in 2016 when he had some profit and missed a 100% gain since then. In 2018, Apple increased the buybacks more than twofold and said it planned to get to cash neutral in the future. There was no pressure, they clearly judge it to be the best use of the money to create shareholder value.
    It was definitely Icahn who fought that battle and got the ball rolling.   But you are correct that he later sold out and the recent share buybacks and dividends have been all Apple's doing -- especially passing on the money from the tax scam to the shareholders.

    I was pointing out that, without Icahn, Apple would likely still be in the mode of reinvesting its profits rather than distributing them.   But, who knows?  It might have happened anyway.
    Reinvesting them in corporate bonds (i.e. loaning them to other corporations), U.S. Treasuries, mortgage-backed securities, and other such instruments? That's what it was doing with the profits it's now returning to shareholders through stock buybacks.

    I'm not generally a fan of (non-closely-held) corporations returning capital to shareholders. I think, broad strokes, the point of equity investment is that one believes that the corporations they're investing in make better use of that capital than one will themselves. There are lots of reasons why one might think that. But that's why you give corporations your capital (or give it to others who previously gave theirs to corporations). If you want your capital back, hopefully with a profit, you sell your shares.

    But a corporation can get to the point that it has so much retained profit that it makes sense to distribute it to shareholders. Apple reached that point some time ago. It wasn't going to throw an extra $20 or 30 billion a year into R&D just because, just because it had the money to do so. It reinvests (in the going concern) that which it thinks makes sense to invest, without regard for how much extra money it has accumulated. To do otherwise would be foolish. And spending large sums on acquisitions just because you have the money to do so would also be foolish.

    So what to do with a huge pile of cash? You keep what you reasonably think you might have need going forward, and you return the rest to shareholders. Apple would almost certainly have done that regardless of what activist investors (holding very modest portions of the company's equity) advocated for. It reached a point when it could no longer justify holding onto all of the cash it had accumulated, investing it in low-return similar-to-cash instruments. Small-ish dividends are okay, but - all things considered - the better way of returning large sums to shareholders is through buybacks. (I'm happy to discuss why that is.) So, if Apple thought its stock was undervalued, then it made sense to buy back shares.

    As for "passing on the money from the tax scam to shareholders": The money Apple has been returning to shareholders isn't from the tax law changes of 2017. It's profit that Apple has made over the last decade or so. It's profit on which it now has to pay more U.S. income taxes than it otherwise would have had to (i.e. without those tax law changes).
    Your namesake's company ultimately (as U.S. Steel) thought the same thing:  "We have too much cash, we can give it away".  And, largely because they failed to reinvest into their business, they could no longer compete and failed.

    As for the excess cash for the 2018 buybacks -- most came from the tax scam.   But Apple was far from alone on that one.  Interesting point on that one though:   Trump just announced the country can't afford to give government workers raises in 2019 -- I guess they gave it all away to Apple Shareholders. 

    Nice straw man.

    Apple's buybacks are in effect, and the direct result of, the Administration's repatriation plan. The lack of those government raises is the result of the Administration, not Apple,

    Again, I would ask how you believe Apple should invest that excess cash.
    No they’re not. Apple likely added to the amount they will be buying back in the latest round of buybacks, but you know that Apple already bought back more than $100 billion in stock before the tax breaks.
    Please detail how Apple should invest the remaining repatriated cash and the cash generated each year, about $50 billion.

    https://www.ped30.com/2018/12/27/wsj-apple-overpayed-9-billion/

    Per comments, long Apple investors are extremely happy with the current trough, and expect Apple to be able to retire even more stock at these low stock prices.

    Per you statement, Apple borrowed money for buybacks starting in 2012, but the cash brought in for repatriation, would have had to meet the criteria of the Administration's plan.
    edited December 2018
  • Reply 129 of 152
    radarthekatradarthekat Posts: 3,878moderator
    tmay said:

    gatorguy said:
    tmay said:
    gatorguy said:
    gatorguy said:
    gatorguy said:

    gatorguy said:
    carnegie said:
    gatorguy said:
    larryjw said:
    crowley said:
    jasenj1 said:
    My understanding is that buy backs are supposed to increase the value of the remaining shares. 
    No, obviously not, otherwise companies would just buy back shares all the time.  The only way to increase the value of shares it to get the market to recognise increasing value in the company.  What share buy backs do is express a clear signal of the company's faith that the shares are undervalued, and therefore worth buying.

    If the market believes the company (and all other things being equal), then more people want to buy shares, and the share value goes up.  If the market doesn't believe the company, or if other things (like for example, an idiot president) happen, then the share value may go down.

    Analysts saying it's a bad investment are day trading idiots who think that because they have the privilege of hindsight, they are somehow geniuses.  Given Apple's P/E it was a fine investment, that has been undercut in the short term by political events. 

    In theory, if the stock they bought was worth what they paid for it, the transaction was a wash -- they traded the cash asset for a stock asset. 
    Except that's not what Apple did. There was no asset trade, ie a share of stock, when Apple repurchased it. That share was retired, burned, and buried. It has no remaining book value. The money was spent in what amounts to an attempt to artificially manipulate the stock value, and each member of the executive management team reaps significant personal benefits monetarily from it. 
    The share is retired, in effect increasing the ownership in the company of each remaining shareholder. It's the same effect as if Apple had divided those repurchased shares up and distributed them to existing shareholders. Apple is buying an increased stake in the company on behalf of existing shareholders. They don't have to spend anything, yet they own more of the company - e.g., more of the liquidation value of the company or a larger share of the ongoing profits of the company.

    Apple is returning capital to shareholders in the form of additional equity in the company. If someone would prefer cash instead of greater equity in the company, they can sell the appropriate amount of shares. They'll own just as much of the company as they did before and have what is effectively a cash distribution. In this way they get to control the tax consequences, for them, of the capital return Apple is doing.
    As a base premise you're assuming that the buybacks actually increased the value of their stock's cash value, for which the evidence is scant IMO. $250B and five years later and their tech brethren who did not (as aggressively if at all) resort to the same use of their cash have performed much the same if not better in the stock market AFAICT. In the five years Apple has been repurchasing/retiring their own shares they've averaged a return of roughly 190%. That compares to 560% for Amazon, and 195% return on Alphabet neither of whom aggressively pursued the same strategies for using their cash assets.

    Is there some evidence of how much Apple shares have been impacted dollarwise? is the price 15%, 25% higher, even more, than it would have been had the stock buybacks not occurred? If not is it possible (probable?) that the attempt at artificially manipulating demand via buybacks may not have been the most efficient way to return value to Apple stockholders? In a nutshell what has their "greater equity in the company" actually delivered for them?

    With such a glut of cash (IMO not unlike gorging on food because, well, you can), could Apple be better served in the long run by marginally reducing product costs which likely increases market share?
    You’re not controlling for variables.  The fact the Apple is so secretive affects its market valuation.  The fact of the history of the PC versus Mac and now iOS versus Android wars, which is really a story of one company going up against an entire industry of companies, with the latter applying far, far higher advertising and marketing budgets in aggregate to sway opinion away from the one wildcard outlier, this also affects market valuation.  The fact these other companies are story stocks, and Apple isn’t, affects its relative valuation.  You haven’t even attempted to mention these contributing factors, much less control for them.  You disappoint me on a level that transcends the lucidity of your comments.  It goes much deeper.  
    In essense I'm asking for any solid evidence of positive impacts on Apple stock prices directly due to the buybacks compared to if they had not occurred.

    You're writing a whole lotta words, and they do seem on the surface so authoritative and all,..
    But nothing you said answers even ONE of the questions I posed. Why bother trying to chide me if you don't any of the answers yourself? 

    I think I'll watch for Carnegie's reply instead. 
    That’s you M.O., to ask others to provide evidence to refute your counter factuals and I’ll-informed assertions.  I choose not to play your game.  Let’s see you provide evidence of your assertions, factoring for the variables you left out.  
    "Choose not to play my game"... lol
    I think if you knew any answers you'd post em.

    So which "assertions" would you like me provide evidence of? Very VERY honest question. I don't shy away from a good discussion, particularly if there's something to learn. 
    A multi variant problem is by its nature intractable, and so it’s very doubtful either you could do the work to control for the many variables that determine how Apple is valued relative to the other companies you mentioned.  Which you should know, and therefore you should have known not to draw Such a simplistic comparison between Apple’s share price increase and theirs.  But you went ahead and did so anyway, which means you’re either playing to he niavety you assume exists in others here, or you don’t comprehend the factors that go into the valuation of businesses.  So here’s my honest question.  Which is it?  
    Ummm, the "assertion" you're pointing out is that there's a lack of evidence how much or even if Apple's buyback program has benefited you as an Apple stockholder. It's certainly not on display if simply looking at the returns on other FAANG tech stocks.

    ...And if you believe the buybacks HAVE made a significant impact then just imagine how poorly your investment in them would have comparatively been if Apple hadn't spent a quarter-$Trillion propping it up. Do you honestly believe Apple would have been 2nd to worst choice among them if not for their stock repurchase program? 

    https://www.nytimes.com/2018/08/01/business/dealbook/apple-stock-buybacks.html

    "That added to its already record level of returning capital to investors. No company has bought back more shares since 2012 than Apple. It has repurchased almost $220 billion of its own stock since it announced in March 2012 that it would start to buy back shares. That is roughly equivalent to the market value of Verizon Communications. Over that period, the number of Apple’s shares outstanding has dropped by just over a quarter.

    Like most stock repurchase efforts, Apple’s buyback program has helped bolster its share price in recent years. Apple shares are up 18 percent this year and nearly 150 percent since March 2012. By reducing the number of shares on the market, buybacks also lift a company’s earnings per share — a key metric for investors. For instance, Apple’s earning per share grew 40 percent last quarter compared with the same period last year, while its net income rose just 32 percent.

    Apple’s buyback binge also affects the calculation of its stock market value, which is approaching $1 trillion. Based on its share count from its fiscal second-quarter filing, the company would have a market value of $984 billion Wednesday. But Apple reduced its share count by 5.5 percent during its fiscal third quarter ending June 30. That means Apple’s market capitalization stands at roughly $970 billion, and its shares now need to hit $206.49 for the company to be valued at $1 trillion."

    Who knows how effective buybacks will be over the next seven years, but I'm guessing that Apple isn't "doomed" and investors holding, and others buying. in this trough, are likely not cowed by the current stock price, and looking forward to those dividends.


    No doubt you see the writers cause and effect flaw almost immediately, right Tmay?

    He notes how much Apple had spent on buybacks, then says doing so helped bolster the stock price. The evidence he provides? Apple shares up 18% this year, and 150% since 2012. That's far short of being proof of anything directly connected to the share price increase he touts.  Amazon and Alphabet are up more than that over the same 5 years without resorting to a quarter-trillion spent retiring stock, so Apple also doing pretty darn well isn't at all proof that the buyback program has been the reason behind it and therefor a pretty effective use of the cash is it? 
    The flaw is exactly that.  One cannot point to the share repurchases and draw any conclusion regarding how they affected the stock price.  There are just too many other factors.  Would we even begin with the current share price?  Why not the $230+ Apple was at before the ridiculous market reaction to Apple announcing it will no longer report unit sales volumes for iPhone, iPad and Mac?  Could anyone suggest that drop in share price was a result of the share repurchases? I hope not, as it’s clear the drop was based upon other factors, and it’s those factors that muddy the picture.  

    After that drop the whole market fell apart and Apple and everything else dropped a lot more through late November and December.  That swoon was also not the result of Apple’s share repurchases.  Couldn’t have been, as it played out across the entire market.  Taking out those two factors, we’d have to evaluate at Apple’s share price of around $230.  But could we say the share repurchases were solely responsible for driving it to that height?  What about the great success of the more expensive iPhone X sales over the previous year, resulting in some 30% higher iPhone revenue on flat unit sales?  Might that factor have weighed in on the stock movement?  Of course it did.  So how can we isolate the share repurchases?  We simply  cannot.  

    But what we can say is that long-term holders who have not altered their position in the stock today own meaningfully more of the company’s future revenue and profit streams than they did prior to the share repurchases.  And that’s why share repurchases are characterized as providing value to shareholders.  We cannot accurately measure the effects of share repurchases over short-term periods because they are only one factor affecting the stock price.   The share repurchases are likely not even the most significant factor.  Investor sentiment is likely the most significant factor in the short-term, and it therefore takes a very long time indeed to isolate even an estimate of the effect of share repurchases.  

    But there is one effect we can somewhat isolate, because we can see it in action, and that is the effect on dividends.  Apple has held the absolute amount paid out in dividends at about $10-12 billion annually for years.  The company has increased the dividend in lock-step with share repurchase volumes, increasing the dividend by a percentage each year that maintains the absolute amount paid out at that same level.  So the more shares the company retires, the more the dividend is raised that year to maintain the overall payout amount in dollars.  This benefits us shareholders with, as another poster characterized them, gold-standard dividend raises.  

    The rest of the effect of the share repurchases (each remaining share representing a larger share of future earnings), will take care of itself over time.  In short, share repurchases simply aren’t about affecting the share price in the short-term or near-term. They are about enhancing the holdings of the company’s persistent investors.  This is very long-term think, not trader-think.  Only traders, market timers, and novices concern themselves with attempts to suss out the immediate effects of such strategies.  Think Different.

    I hope you understand that sometimes I have to wait in our conversations until your thinking evolves to a point where what I have to say can make sense to you.  There’s little point in me digging down to the essence of the matter prior to that.   
    Gatorguy is stuck on comparing Apple to Alphabet and Amazon; that's certainly flawed, especially given that Apple will be implementing buybacks for another seven years, and neither of those other companies had much cash to repatriate. That makes Apple the outlier of the comparison. Did I mention that neither of those companies pay dividends, nor should they with their business models?

    Given that Apple is a company that often demonstrates punctuated equilibrium, a theory of an evolutionary mechanism, its stock will most often be considered as a steel mill, punctuated with periods of impressive growth. Attempting to determine the efficiency of buybacks over a partial period of time, is most certainly flawed, and given Apple's internal roadmap, buybacks would appear to be quite efficient for the shareholders, given no other viable alternatives to reduce Apple's cash.

    The best case for Apple is to purchase and retire shares at less than market value, which looks to be happening through the first couple of quarters of 2019. Attempting to compare stock values today between Apple and Alphabet/Amazon, isn't going to be very useful.


    Punctuated Equilibrium is an interesting anology.  Apple does seem to parallel the process described by Gould (I’ve read all his essays, a long time ago).  For those not familiar it’s a theory of speciation, where a number of members of a species find themselves isolated in a new environment and rapidly evolve (relative to evolutionary timeframes) to adapt to that new environment, exhibiting new adaptations suitable to that environment and thereby is eventually able to thrive in that environment.  Loosely applied to Apple would be how Apple enters new markets (the Smartwatch market comes to mind) with a less than ideal or fully formed offering, but then incrementally adapts until the product seems almost ideally suited to the market, with all extraneous functionality stripped away and essential new capabilities added.  This is then followed by a high rate of adoption (read growth in sales and profits).  Apple’s business tenets provide the source pool of DNA introduced into each new environment [market].  Of course, Apple, or any business, can be thought of more in terms of a directed evolutionary agent/process; it’s not merely at the influence of environmental factors to dictate its fate, and that considered direction of the process greatly speeds the adaptive response.  Very cool analogy @tmay.  
    edited December 2018
  • Reply 130 of 152
    radarthekatradarthekat Posts: 3,878moderator
    melgross said:


    Stock buybacks don't stimulate the economy, just like profit doesn't stimulate the economy. It's all money that doesn't go into circulation. So if you're exploding the debt for the sake of something that doesn't stimulate the economy, what exactly is the point supposed to be economically? The whole thing is a completely cynical exercise. 
    It’s not money that goes into circulation?  Really? What then are those people who decided to sell their Apple shares doing, retiring that money, like Apple retired the shares?  Taking it out in the backyard and having a bonfire?  Of course that money goes into circulation.  Apple was holding it in treasuries.  The Apple shareholders were/are risk-taking investors or traders.  After they sell those Apple shares it’s unlikely their temperament is one that would have them stick the money into treasuries.  No, those folks are investing that money or spending it into the economy.  
    It’s not new money. It’s just the same money being distributed differently. Apple buys stock from some of those who have it. They get the cash, and usually end up buying more stocks. The money doesn’t really circulate in the economy itself.  It just ends up in different places. Apple isn’t buying from small investors either. It’s buying from large investment firms. The money, to Apple, is just being burned.
    I’m sorry, please explain to me who these folks buy new stock from? They buy it from others who are selling, whatever stocks the Apple sellers are interested in buying with the money they got selling their Apple shares back to Apple.  So through however many layers you want to extend this, eventually the 100s of billions formerly sitting in treasuries find their way into pockets of a whole succession of folks who trade or invest in stocks, but also buy cars and homes and food and go on vacations.  The fact that money made its way back into circulation via a first step of being used to buy back shares is almost inconsequential. 
    edited December 2018
  • Reply 131 of 152
    radarthekatradarthekat Posts: 3,878moderator
    melgross said:
    flydog said:
    melgross said:
    What happens is that the money goes down a black hole, while there’s no evidence that shares go up at all.
    Perhaps you're not familiar with the principle of supply and demand.  When there is less supply or more demand, the price goes up because buyers are competing for fewer shares.  This is taught the first day of any high school economics. 

    In addition, financial ratios such as price to boo, price to earnings, price to cash flow, etc become more favorable.

    Finally, do you really think any company would throw money into a black hole?

    The good news is that you appear qualified to be the next Chairman of the Federal Reserve.
    Very amusing. Perhaps you’re not familiar with the real world? For decades, since buybacks became legal, we’ve been promised that buying stock bCk would result in higher stock prices. There is no evidence that it happens. If you put some thought into it, you would see why.

    lets say that Apple has an even 5 billion shares. They buy back 100 million. That’s a lot of stock to buy back. What percentage of the overall stock does it represent? 2%. So spending say $200 a share, which was an average for much of the second half of the year, would cost $20 billion. If that causes a rise in the stock by 2%. We would see a who,e $4 increase. That’s not much, and it’s hard to see if it’s real. The stock rises and fallen by more than that for small reasons by itself. With all the buybacks Apple did this year, we can look to the current price and ask what part of it is due to buybacks? What, the stock is down /$80 a share? My, these buybacks were certainly helpful!
    Mel, you really need to go back and read my comments #s 87, 97, and especially 111 in this thread.  Then if there’s any more discussion you want to have regarding share repurchases I’d be happy to engage with you on that.  I think this is important for you to grasp as you have a lot riding on it with your significant position in Apple shares.  I’d hate to see you become frustrated based upon misconceptions and as a result draw down your position.  A position I think you should hang onto.   
  • Reply 132 of 152
    k2kwk2kw Posts: 2,077member
    brucemc said:
    A few things to consider:
    - Apple started to return cash to shareholders as a result of generating so much of it.  Their net cash position was well over $100B.  The iPhone phenomenon was bigger than anything before, and it was after the Jobs era when the bucket loads of cash started to pore in (for those who want to focus on Jobs' view)
    - A focused company - which, if you know anything about Apple, you know they strive for this - can only invest in so much at one time.  More money, past a certain point, does not solve a problem faster.  Anyone who understands product development and engineering knows this.  Things take time, regardless of money.
    - So there is excess, or free cash, and as you should know with Apple, it is a lot - about $50B/year.  Believe it or not, but high amounts of cash on a companies balance sheet is *not* considered a good thing.  People don't invest in Apple to gain a share of cash earning little money.  So that cash has to be dealt with.
    - Some would argue that Apple should go around buying numerous large companies (Netflix, Disney, Tesla) - and spend all of their money that way.  But for such shrewd investors, they should look at the history of large acquisitions to see how they turned out for company value.  Hint - it isn't pretty (something like 80% are value destructive).  Now think about Apple's culture and how that would work.
    - Or there is returning it to shareholders.  That can be with dividends (taxable in the year received) or buybacks with retirement, which reduce the count and increase ownership %.  Apple does both.  Apple has been raising their dividend on average greater than 10% each year, which is considered a gold standard.
    - Some may look at the buybacks as "burning money", but at the end of the day it is increasing the % ownership in Apple for remaining shareholders, and if you think Apple is a well run company, with great products, which generate money, and have a solid future - then that is a good thing.

    Melgross appears to be a successful investor, and as such his opinion has value, but while he has been skeptical of buybacks, I can't recall him making any suggestions as to how Apple should manage their excess cash.  For the cash levels that Apple is making, the choice is really huge dividends each year, buybacks, or large company acquisitions.

    Apple is not like many other companies performing buybacks, who are borrowing huge money to do so (arguing that it is OK with rates so low).  Apple only borrowed effectively against foreign cash, to have domestic funds for buybacks.  Their net cash position was, and is, strong.  With tax changes, Apple has access to its foreign cash at an acceptable rate, and no longer needs to borrow to fund its shareholder return programs.  Apple's buybacks are funded from free cash flow - not increasing net debt.  Hopefully people can understand the difference.
    They should have bought Netflix years ago.
  • Reply 133 of 152
    k2kwk2kw Posts: 2,077member
    tmay said:
    Apple didn't start paying large dividends or make stock buy backs because they had excess cash.   They did it because activist share holders like Carl Icahn forced them to.   It was not a "business decision".
    You claim to know something but it just does not hold up at all. Icahn had less than 1% of the company. Totally irrelevant. He also sold in 2016 when he had some profit and missed a 100% gain since then. In 2018, Apple increased the buybacks more than twofold and said it planned to get to cash neutral in the future. There was no pressure, they clearly judge it to be the best use of the money to create shareholder value.
    It was definitely Icahn who fought that battle and got the ball rolling.   But you are correct that he later sold out and the recent share buybacks and dividends have been all Apple's doing -- especially passing on the money from the tax scam to the shareholders.

    I was pointing out that, without Icahn, Apple would likely still be in the mode of reinvesting its profits rather than distributing them.   But, who knows?  It might have happened anyway.
    Given Apple's current cash, and it's $50B yearly profit (and growing), I'm not seeing how Apple could invest in itself fast enough to utilize all of the cash. 

    Still, there are plenty of analysts that state that Apple should use the money for large acquisitions, for example buying Tesla or Netflix, which in my opinion would be the height of folly.

    Fortunately, Apple doesn't see large acquisitions adding shareholder value.
    NetFlix and Tesla five years ago would have been great ideas, but probably too late now.    But it wouldn't hurt to by some shares of Tesla now.   At least Musk is innovative and has ideas.   I wonder how many billions have been sunk in Titan with nothing to show.
  • Reply 134 of 152
    tmaytmay Posts: 6,439member
    k2kw said:
    tmay said:
    Apple didn't start paying large dividends or make stock buy backs because they had excess cash.   They did it because activist share holders like Carl Icahn forced them to.   It was not a "business decision".
    You claim to know something but it just does not hold up at all. Icahn had less than 1% of the company. Totally irrelevant. He also sold in 2016 when he had some profit and missed a 100% gain since then. In 2018, Apple increased the buybacks more than twofold and said it planned to get to cash neutral in the future. There was no pressure, they clearly judge it to be the best use of the money to create shareholder value.
    It was definitely Icahn who fought that battle and got the ball rolling.   But you are correct that he later sold out and the recent share buybacks and dividends have been all Apple's doing -- especially passing on the money from the tax scam to the shareholders.

    I was pointing out that, without Icahn, Apple would likely still be in the mode of reinvesting its profits rather than distributing them.   But, who knows?  It might have happened anyway.
    Given Apple's current cash, and it's $50B yearly profit (and growing), I'm not seeing how Apple could invest in itself fast enough to utilize all of the cash. 

    Still, there are plenty of analysts that state that Apple should use the money for large acquisitions, for example buying Tesla or Netflix, which in my opinion would be the height of folly.

    Fortunately, Apple doesn't see large acquisitions adding shareholder value.
    NetFlix and Tesla five years ago would have been great ideas, but probably too late now.    But it wouldn't hurt to by some shares of Tesla now.   At least Musk is innovative and has ideas.   I wonder how many billions have been sunk in Titan with nothing to show.
    Tesla may be "innovative" in some aspects, but Model 3's are built with poor quality control and reliability. It's also doubtful that Tesla has been making money. There's plenty of websites that you can find that Track Tesla, but twitter is as well a great source.

    https://twitter.com/TeslaCharts
    https://twitter.com/markbspiegel

    Did I mention that Porsche, Audi, and Jaguar are picking off Tesla sales at the top, and as Tesla doesn't actually have an inexpensive Model 3, there are a number of companies already in, or moving into, the $35K space?

    By all means, you should buy the Tesla stock.
    edited December 2018
  • Reply 135 of 152
    GeorgeBMacGeorgeBMac Posts: 11,421member
    melgross said:


    Stock buybacks don't stimulate the economy, just like profit doesn't stimulate the economy. It's all money that doesn't go into circulation. So if you're exploding the debt for the sake of something that doesn't stimulate the economy, what exactly is the point supposed to be economically? The whole thing is a completely cynical exercise. 
    It’s not money that goes into circulation?  Really? What then are those people who decided to sell their Apple shares doing, retiring that money, like Apple retired the shares?  Taking it out in the backyard and having a bonfire?  Of course that money goes into circulation.  Apple was holding it in treasuries.  The Apple shareholders were/are risk-taking investors or traders.  After they sell those Apple shares it’s unlikely their temperament is one that would have them stick the money into treasuries.  No, those folks are investing that money or spending it into the economy.  
    It’s not new money. It’s just the same money being distributed differently. Apple buys stock from some of those who have it. They get the cash, and usually end up buying more stocks. The money doesn’t really circulate in the economy itself.  It just ends up in different places. Apple isn’t buying from small investors either. It’s buying from large investment firms. The money, to Apple, is just being burned.
    I’m sorry, please explain to me who these folks buy new stock from? They buy it from others who are selling, whatever stocks the Apple sellers are interested in buying with the money they got selling their Apple shares back to Apple.  So through however many layers you want to extend this, eventually the 100s of billions formerly sitting in treasuries find their way into pockets of a whole succession of folks who trade or invest in stocks, but also buy cars and homes and food and go on vacations.  The fact that money made its way back into circulation via a first step of being used to buy back shares is almost inconsequential. 
    From the sociologic perspective (rather than the investment perspective) I think this quote from a CNN article summarizes much of this debate pretty well -- at least from the perspectives of moderate vs far left Democrats:

    "Centrists see the problem as a failure to help workers adapt to the trends of automation and globalization, which demands fixes such as more job training, apprenticeships, and vocational programs to equip them for high-demand careers like nursing, advanced manufacturing, and data science. 
    On the progressive left, however, a consensus is emerging that the real challenge is the rise of corporate consolidation and the decline of worker bargaining power. That in turn has allowed businesses to funnel excess profits to shareholders rather than higher wages, which would incentivize workers to pursue the type of education that made the most sense for them financially. 
    In order to take aim at that issue, Democrats like Booker and Wisconsin Sen. Tammy Baldwin have introduced bills that would restrict companies' ability to buy back their own stock as well as direct federal regulators to scrutinize corporate mergers more carefully. 
    "We think what's really important is that policymakers are articulating a diagnosis of the economy that really centers the role of outsized corporate power, and the role of government to curb that power," says Stephanie Sterling, vice president for advocacy and policy at the Roosevelt Institute. "We're not going to upskill our way to an economy where working people are getting a fair share."

    I think, while ignoring the "Trickle Down", "Job Creators" theories from the right, it exemplifies the debate over the real issues in mainstream and the far right.   Namely   Is the problem:
    a).  Too much corporate power making the middle class poor and the poor even poorer
    b).  Is it that automation and globalization have displaced workers who are unprepared for the requirements of a new Industrial Age that requires a newer set of skills?

    The only good part of these "either/or" type arguments is the heated debate that it triggers.
  • Reply 136 of 152
    melgrossmelgross Posts: 33,585member
    tmay said:
    melgross said:
    tmay said:
    carnegie said:
    Apple didn't start paying large dividends or make stock buy backs because they had excess cash.   They did it because activist share holders like Carl Icahn forced them to.   It was not a "business decision".
    You claim to know something but it just does not hold up at all. Icahn had less than 1% of the company. Totally irrelevant. He also sold in 2016 when he had some profit and missed a 100% gain since then. In 2018, Apple increased the buybacks more than twofold and said it planned to get to cash neutral in the future. There was no pressure, they clearly judge it to be the best use of the money to create shareholder value.
    It was definitely Icahn who fought that battle and got the ball rolling.   But you are correct that he later sold out and the recent share buybacks and dividends have been all Apple's doing -- especially passing on the money from the tax scam to the shareholders.

    I was pointing out that, without Icahn, Apple would likely still be in the mode of reinvesting its profits rather than distributing them.   But, who knows?  It might have happened anyway.
    Reinvesting them in corporate bonds (i.e. loaning them to other corporations), U.S. Treasuries, mortgage-backed securities, and other such instruments? That's what it was doing with the profits it's now returning to shareholders through stock buybacks.

    I'm not generally a fan of (non-closely-held) corporations returning capital to shareholders. I think, broad strokes, the point of equity investment is that one believes that the corporations they're investing in make better use of that capital than one will themselves. There are lots of reasons why one might think that. But that's why you give corporations your capital (or give it to others who previously gave theirs to corporations). If you want your capital back, hopefully with a profit, you sell your shares.

    But a corporation can get to the point that it has so much retained profit that it makes sense to distribute it to shareholders. Apple reached that point some time ago. It wasn't going to throw an extra $20 or 30 billion a year into R&D just because, just because it had the money to do so. It reinvests (in the going concern) that which it thinks makes sense to invest, without regard for how much extra money it has accumulated. To do otherwise would be foolish. And spending large sums on acquisitions just because you have the money to do so would also be foolish.

    So what to do with a huge pile of cash? You keep what you reasonably think you might have need going forward, and you return the rest to shareholders. Apple would almost certainly have done that regardless of what activist investors (holding very modest portions of the company's equity) advocated for. It reached a point when it could no longer justify holding onto all of the cash it had accumulated, investing it in low-return similar-to-cash instruments. Small-ish dividends are okay, but - all things considered - the better way of returning large sums to shareholders is through buybacks. (I'm happy to discuss why that is.) So, if Apple thought its stock was undervalued, then it made sense to buy back shares.

    As for "passing on the money from the tax scam to shareholders": The money Apple has been returning to shareholders isn't from the tax law changes of 2017. It's profit that Apple has made over the last decade or so. It's profit on which it now has to pay more U.S. income taxes than it otherwise would have had to (i.e. without those tax law changes).
    Your namesake's company ultimately (as U.S. Steel) thought the same thing:  "We have too much cash, we can give it away".  And, largely because they failed to reinvest into their business, they could no longer compete and failed.

    As for the excess cash for the 2018 buybacks -- most came from the tax scam.   But Apple was far from alone on that one.  Interesting point on that one though:   Trump just announced the country can't afford to give government workers raises in 2019 -- I guess they gave it all away to Apple Shareholders. 

    Nice straw man.

    Apple's buybacks are in effect, and the direct result of, the Administration's repatriation plan. The lack of those government raises is the result of the Administration, not Apple,

    Again, I would ask how you believe Apple should invest that excess cash.
    No they’re not. Apple likely added to the amount they will be buying back in the latest round of buybacks, but you know that Apple already bought back more than $100 billion in stock before the tax breaks.
    Please detail how Apple should invest the remaining repatriated cash and the cash generated each year, about $50 billion.

    https://www.ped30.com/2018/12/27/wsj-apple-overpayed-9-billion/

    Per comments, long Apple investors are extremely happy with the current trough, and expect Apple to be able to retire even more stock at these low stock prices.

    Per you statement, Apple borrowed money for buybacks starting in 2012, but the cash brought in for repatriation, would have had to meet the criteria of the Administration's plan.
    That’s just not true. Apple buys its stocks from big investment houses. Those stocks are just going to go back into other large investments. The net gain is pretty much zero.
     
    I am a long investor, as you know. Apple has problems, as do all large companies. Some of these can be rectified, and some can’t. I know that Apple uses other OEMs so that they don’t have to run their own plants. But perhaps, they should run some of their own plants. Perhaps they should be investing in technologies that will allow them to do so. Really, they are big enough to absorb an additional $10 billion a year in R&D. Some of their competitors already spend more than even that.

    apple’s marketing is a shambles. They haven’t advertised the Mac in any serious way for years. They should. They should also stop wimping out in bidding for content. This is something they are trying to be a big player in. If so, then they need to act like it.

    they do t have to spend every penny, but they have a lot more flexibility than most of their competitors. They just don’t like to do what they need to sometimes. If something doesn’t do well from the start, instead of investing in it, they abandon it. Remember what’s been said of Microsoft for decades, that it takes to version 3 before it becomes good. Apple leaves at version 1.1. They just don’t want to spend the money to follow up. They need to.

    and as for investors, I’d be much happier if Apple kept up in dividend percentages than buying stock back
    edited December 2018 gatorguyGeorgeBMacmuthuk_vanalingam
  • Reply 137 of 152
    tmaytmay Posts: 6,439member
    melgross said:


    Stock buybacks don't stimulate the economy, just like profit doesn't stimulate the economy. It's all money that doesn't go into circulation. So if you're exploding the debt for the sake of something that doesn't stimulate the economy, what exactly is the point supposed to be economically? The whole thing is a completely cynical exercise. 
    It’s not money that goes into circulation?  Really? What then are those people who decided to sell their Apple shares doing, retiring that money, like Apple retired the shares?  Taking it out in the backyard and having a bonfire?  Of course that money goes into circulation.  Apple was holding it in treasuries.  The Apple shareholders were/are risk-taking investors or traders.  After they sell those Apple shares it’s unlikely their temperament is one that would have them stick the money into treasuries.  No, those folks are investing that money or spending it into the economy.  
    It’s not new money. It’s just the same money being distributed differently. Apple buys stock from some of those who have it. They get the cash, and usually end up buying more stocks. The money doesn’t really circulate in the economy itself.  It just ends up in different places. Apple isn’t buying from small investors either. It’s buying from large investment firms. The money, to Apple, is just being burned.
    I’m sorry, please explain to me who these folks buy new stock from? They buy it from others who are selling, whatever stocks the Apple sellers are interested in buying with the money they got selling their Apple shares back to Apple.  So through however many layers you want to extend this, eventually the 100s of billions formerly sitting in treasuries find their way into pockets of a whole succession of folks who trade or invest in stocks, but also buy cars and homes and food and go on vacations.  The fact that money made its way back into circulation via a first step of being used to buy back shares is almost inconsequential. 
    From the sociologic perspective (rather than the investment perspective) I think this quote from a CNN article summarizes much of this debate pretty well -- at least from the perspectives of moderate vs far left Democrats:

    "Centrists see the problem as a failure to help workers adapt to the trends of automation and globalization, which demands fixes such as more job training, apprenticeships, and vocational programs to equip them for high-demand careers like nursing, advanced manufacturing, and data science. 
    On the progressive left, however, a consensus is emerging that the real challenge is the rise of corporate consolidation and the decline of worker bargaining power. That in turn has allowed businesses to funnel excess profits to shareholders rather than higher wages, which would incentivize workers to pursue the type of education that made the most sense for them financially. 
    In order to take aim at that issue, Democrats like Booker and Wisconsin Sen. Tammy Baldwin have introduced bills that would restrict companies' ability to buy back their own stock as well as direct federal regulators to scrutinize corporate mergers more carefully. 
    "We think what's really important is that policymakers are articulating a diagnosis of the economy that really centers the role of outsized corporate power, and the role of government to curb that power," says Stephanie Sterling, vice president for advocacy and policy at the Roosevelt Institute. "We're not going to upskill our way to an economy where working people are getting a fair share."

    I think, while ignoring the "Trickle Down", "Job Creators" theories from the right, it exemplifies the debate over the real issues in mainstream and the far right.   Namely   Is the problem:
    a).  Too much corporate power making the middle class poor and the poor even poorer
    b).  Is it that automation and globalization have displaced workers who are unprepared for the requirements of a new Industrial Age that requires a newer set of skills?

    The only good part of these "either/or" type arguments is the heated debate that it triggers.
    I'm all for that legislation, but in my opinion, it isn't going to make much difference in job creation, and I would note that the legislation would also increase scrutiny of corporate mergers, leaving Apple, as an example, only organic growth, which it is almost certainly maximized now. So. Apple is still stuck with 10's of billions a year of cash for the next decade.

    Other than adding my own political diatribe, which is a bad idea here, I would only state that our Government is a good vehicle for creating a green economy, generating jobs, and weaning off foreign oil (sorry Canada!).
    GeorgeBMacradarthekat
  • Reply 138 of 152
    melgrossmelgross Posts: 33,585member

    melgross said:
    flydog said:
    melgross said:
    What happens is that the money goes down a black hole, while there’s no evidence that shares go up at all.
    Perhaps you're not familiar with the principle of supply and demand.  When there is less supply or more demand, the price goes up because buyers are competing for fewer shares.  This is taught the first day of any high school economics. 

    In addition, financial ratios such as price to boo, price to earnings, price to cash flow, etc become more favorable.

    Finally, do you really think any company would throw money into a black hole?

    The good news is that you appear qualified to be the next Chairman of the Federal Reserve.
    Very amusing. Perhaps you’re not familiar with the real world? For decades, since buybacks became legal, we’ve been promised that buying stock bCk would result in higher stock prices. There is no evidence that it happens. If you put some thought into it, you would see why.

    lets say that Apple has an even 5 billion shares. They buy back 100 million. That’s a lot of stock to buy back. What percentage of the overall stock does it represent? 2%. So spending say $200 a share, which was an average for much of the second half of the year, would cost $20 billion. If that causes a rise in the stock by 2%. We would see a who,e $4 increase. That’s not much, and it’s hard to see if it’s real. The stock rises and fallen by more than that for small reasons by itself. With all the buybacks Apple did this year, we can look to the current price and ask what part of it is due to buybacks? What, the stock is down /$80 a share? My, these buybacks were certainly helpful!
    Mel, you really need to go back and read my comments #s 87, 97, and especially 111 in this thread.  Then if there’s any more discussion you want to have regarding share repurchases I’d be happy to engage with you on that.  I think this is important for you to grasp as you have a lot riding on it with your significant position in Apple shares.  I’d hate to see you become frustrated based upon misconceptions and as a result draw down your position.  A position I think you should hang onto.   
    I’m not frustrated, and I have no intention of drawing my position down anytime soon. You never know the future though. I’m trying to convince my wife, who recently sold her parents house, to buy Apple while it’s low.

    i grasp this very well, thank you.
    GeorgeBMac
  • Reply 139 of 152
    avon b7avon b7 Posts: 7,892member
    k2kw said:
    brucemc said:
    A few things to consider:
    - Apple started to return cash to shareholders as a result of generating so much of it.  Their net cash position was well over $100B.  The iPhone phenomenon was bigger than anything before, and it was after the Jobs era when the bucket loads of cash started to pore in (for those who want to focus on Jobs' view)
    - A focused company - which, if you know anything about Apple, you know they strive for this - can only invest in so much at one time.  More money, past a certain point, does not solve a problem faster.  Anyone who understands product development and engineering knows this.  Things take time, regardless of money.
    - So there is excess, or free cash, and as you should know with Apple, it is a lot - about $50B/year.  Believe it or not, but high amounts of cash on a companies balance sheet is *not* considered a good thing.  People don't invest in Apple to gain a share of cash earning little money.  So that cash has to be dealt with.
    - Some would argue that Apple should go around buying numerous large companies (Netflix, Disney, Tesla) - and spend all of their money that way.  But for such shrewd investors, they should look at the history of large acquisitions to see how they turned out for company value.  Hint - it isn't pretty (something like 80% are value destructive).  Now think about Apple's culture and how that would work.
    - Or there is returning it to shareholders.  That can be with dividends (taxable in the year received) or buybacks with retirement, which reduce the count and increase ownership %.  Apple does both.  Apple has been raising their dividend on average greater than 10% each year, which is considered a gold standard.
    - Some may look at the buybacks as "burning money", but at the end of the day it is increasing the % ownership in Apple for remaining shareholders, and if you think Apple is a well run company, with great products, which generate money, and have a solid future - then that is a good thing.

    Melgross appears to be a successful investor, and as such his opinion has value, but while he has been skeptical of buybacks, I can't recall him making any suggestions as to how Apple should manage their excess cash.  For the cash levels that Apple is making, the choice is really huge dividends each year, buybacks, or large company acquisitions.

    Apple is not like many other companies performing buybacks, who are borrowing huge money to do so (arguing that it is OK with rates so low).  Apple only borrowed effectively against foreign cash, to have domestic funds for buybacks.  Their net cash position was, and is, strong.  With tax changes, Apple has access to its foreign cash at an acceptable rate, and no longer needs to borrow to fund its shareholder return programs.  Apple's buybacks are funded from free cash flow - not increasing net debt.  Hopefully people can understand the difference.
    They should have bought Netflix years ago.
    Definitely. It would have eliminated a direct competitor and had them hitting the ground running.
  • Reply 140 of 152
    tmaytmay Posts: 6,439member
    avon b7 said:
    k2kw said:
    brucemc said:
    A few things to consider:
    - Apple started to return cash to shareholders as a result of generating so much of it.  Their net cash position was well over $100B.  The iPhone phenomenon was bigger than anything before, and it was after the Jobs era when the bucket loads of cash started to pore in (for those who want to focus on Jobs' view)
    - A focused company - which, if you know anything about Apple, you know they strive for this - can only invest in so much at one time.  More money, past a certain point, does not solve a problem faster.  Anyone who understands product development and engineering knows this.  Things take time, regardless of money.
    - So there is excess, or free cash, and as you should know with Apple, it is a lot - about $50B/year.  Believe it or not, but high amounts of cash on a companies balance sheet is *not* considered a good thing.  People don't invest in Apple to gain a share of cash earning little money.  So that cash has to be dealt with.
    - Some would argue that Apple should go around buying numerous large companies (Netflix, Disney, Tesla) - and spend all of their money that way.  But for such shrewd investors, they should look at the history of large acquisitions to see how they turned out for company value.  Hint - it isn't pretty (something like 80% are value destructive).  Now think about Apple's culture and how that would work.
    - Or there is returning it to shareholders.  That can be with dividends (taxable in the year received) or buybacks with retirement, which reduce the count and increase ownership %.  Apple does both.  Apple has been raising their dividend on average greater than 10% each year, which is considered a gold standard.
    - Some may look at the buybacks as "burning money", but at the end of the day it is increasing the % ownership in Apple for remaining shareholders, and if you think Apple is a well run company, with great products, which generate money, and have a solid future - then that is a good thing.

    Melgross appears to be a successful investor, and as such his opinion has value, but while he has been skeptical of buybacks, I can't recall him making any suggestions as to how Apple should manage their excess cash.  For the cash levels that Apple is making, the choice is really huge dividends each year, buybacks, or large company acquisitions.

    Apple is not like many other companies performing buybacks, who are borrowing huge money to do so (arguing that it is OK with rates so low).  Apple only borrowed effectively against foreign cash, to have domestic funds for buybacks.  Their net cash position was, and is, strong.  With tax changes, Apple has access to its foreign cash at an acceptable rate, and no longer needs to borrow to fund its shareholder return programs.  Apple's buybacks are funded from free cash flow - not increasing net debt.  Hopefully people can understand the difference.
    They should have bought Netflix years ago.
    Definitely. It would have eliminated a direct competitor and had them hitting the ground running.
    Strictly speaking, Apple would be better off acquiring Disney over Netflix, at a premium of about $50B ($165B vs $111B market caps), but I doubt that the DOJ would allow that purchase.
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