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

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  • Reply 41 of 152
    hexclockhexclock Posts: 1,089member
    hexclock said:
    Who gives a flying hoot whether it was good or bad for Apple. Stealing poor people's healthcare and giving the money to the rich was horrendous public policy.

    We were promised increased investment, not stock buybacks for Apple shareholders. That didn't happen.
    Oh yeah? Stealing my entire tax return three years straight because I didn’t have (or need) health insurance was a pretty horrendous policy as well, which thankfully, has ended. 
    With guaranteed issue health insurance available to all, the mandate was necessary to insure that people didn't wait till they got sick to purchase insurance.   That would destort and potentially destroy the market -- and force those who had taken insurance to pay for those who waited till they got sick.

    Sorry, you lost your free ride.
    Yes I know how it worked. And what free ride are you talking about? I was not utilizing any social services. Just working my job. If anything, my money was paying for other people’s free ride, and still is!
    edited December 2018
  • Reply 42 of 152
    billm47645billm47645 Posts: 2unconfirmed, member
    Studies have shown that companies buyback their stock near all time highs.  Buying stock is basically a 50/50 shot through a Monte Carlo simulator.  The only thing that matters is that you are on the right side of a bull market and easy liquidity through the FED.    Yes, a lot of people have gotten lucky buying Apple 10 years or more ago, but for every Apple there are 500 other companies that could have been Apples but are either no longer around or are basically irrelevant.  If Apple’s executives were such geniuses, perhaps they would have waited until possibly now to begin their buybacks?  Because when it comes to financial markets, they are novices getting scammed by Wall Street and recently they don’t seem to do what they are supposed to be doing all that well either.  Some of the best long term returns on Wall Street believe it or not are utility companies and guess what they do? Pay dividends.  There probably is a time and place for buybacks, but for the most part it is short term financial engineering IMO.  
    jasenj1mdriftmeyer
  • Reply 43 of 152
    brucemcbrucemc Posts: 1,541member
    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.
    muthuk_vanalingamtmayradarthekatrainmaker
  • Reply 44 of 152
    Tech companies doing buybacks traditionally signal a company which has run out of ideas to expand.
    rainmakerGeorgeBMac
  • Reply 45 of 152
    bwikbwik Posts: 564member
    Without addressing the elementary basic definition of stock buybacks, I will say that it is entirely possible to make hundreds of billions of dollars disappear if you do big stock buybacks at high prices before share prices fall.  For example, GE used to be worth 600 billion dollars, now worth about 70.  So over 500 billion dollars in market cap was lost, or around 90% of value disappeared.  IF they sank $200 billion into stock buybacks during the max share price period, then $180 billion of that money simply disappears.  There are not many ways to make 180 billion in cold hard cash just disappear, but share buybacks at this scale is one of the ways.  

    I don't think AAPL will fall 90%, but any steward of say $200 billion needs to think about that.  They had US dollars and they decided to vastly increase the risk of that asset by investing it in Apple stock at a very high price.  
    edited December 2018 jasenj1
  • Reply 46 of 152
    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. 
    GeorgeBMac
  • Reply 47 of 152
    radarthekatradarthekat Posts: 3,574moderator
    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.  
    edited December 2018 tmay
  • Reply 48 of 152
    radarthekatradarthekat Posts: 3,574moderator
    What was the opportunity cost of using those funds to buy back their stock? What other investment could they have made instead?
    A buyback is not an investment.   It's a confession that the company doesn't have faith in investing in itself and its own products.   It's essentially a give-away to the stockholders.  

    In this particular case, it was essentially laundering the money from the Tax-Scam:  The U.S. is borrowing $1.5trillion dollars that mostly just got passed through corporations such as Apple to the stockholders. 

    I wonder if those stockholders will return the money when the country declares it has to cut back on Medicare and other programs because it gave away its money to them?
    Hmm, let’s do a mind experiment.  Imagine Apple had $40 TRILLION in cash.  At that post, admittedly an absurd amount, would you consider that Apple has more money than it needs to fund ongoing operations, future product and services roadmap development, infrastructure buildout, and technology acquisitions?  I think we can agree that at $40 trillion in cash, Apple would certainly be considered to have excess cash on the books that it could disseminate without any harm to the future prospects for the business.  What about $250 billion?  Apple has stated, even at this amount, the company has excess cash.  So it’s indeed not an admission that the company doesn’t have faith in itself and its own products.  It’s an admission that the company has all the cash it needs to drive itself forward on all fronts, and still has more cash; excess cash.  It’s that excess cash that it’s deploying to repurchase shares and pay dividends.  (Separate argument as to how much of each it should be doing.)
    rainmaker
  • Reply 49 of 152
    radarthekatradarthekat Posts: 3,574moderator
    hexclock said:
    hexclock said:
    Who gives a flying hoot whether it was good or bad for Apple. Stealing poor people's healthcare and giving the money to the rich was horrendous public policy.

    We were promised increased investment, not stock buybacks for Apple shareholders. That didn't happen.
    Oh yeah? Stealing my entire tax return three years straight because I didn’t have (or need) health insurance was a pretty horrendous policy as well, which thankfully, has ended. 
    With guaranteed issue health insurance available to all, the mandate was necessary to insure that people didn't wait till they got sick to purchase insurance.   That would destort and potentially destroy the market -- and force those who had taken insurance to pay for those who waited till they got sick.

    Sorry, you lost your free ride.
    Yes I know how it worked. And what free ride are you talking about? I was not utilizing any social services. Just working my job. If anything, my money was paying for other people’s free ride, and still is!
    I believe GeorgeB was suggesting that you were consciously employing the strategy of holding back on buying insurance intending only to get onboard if you had an expensive injury or developed an expensive condition.  I’m living overseas the past couple years, and this allows me an exemption, because the government recognizes that I could not actually benefit from affordable care act insurance even if I had it, as virtually no hospitals or doctors anywhere outside the states accept it.  My own stance on self insuring is that I actually intend to be responsible for my fate, not dump any costs back on the American people.  I, for one, feel we should each have that right, but in exercising it, we should not easily be given an out.  The part of the law that allows the uninsured to come back in once they develop some expensive ailment or sustain an expensive injury should be means tested; you should have to spend a fair percent of your own net worth first, before any costs are dropped on the rest of society.  Thats just my view, and I bet it closely matches yours.  But George might not agree. 
    GeorgeBMac
  • Reply 50 of 152
    radarthekatradarthekat Posts: 3,574moderator
    Studies have shown that companies buyback their stock near all time highs.  Buying stock is basically a 50/50 shot through a Monte Carlo simulator.  The only thing that matters is that you are on the right side of a bull market and easy liquidity through the FED.    Yes, a lot of people have gotten lucky buying Apple 10 years or more ago, but for every Apple there are 500 other companies that could have been Apples but are either no longer around or are basically irrelevant.  If Apple’s executives were such geniuses, perhaps they would have waited until possibly now to begin their buybacks?  Because when it comes to financial markets, they are novices getting scammed by Wall Street and recently they don’t seem to do what they are supposed to be doing all that well either.  Some of the best long term returns on Wall Street believe it or not are utility companies and guess what they do? Pay dividends.  There probably is a time and place for buybacks, but for the most part it is short term financial engineering IMO.  
    As of the end of last quarter, when the stock was around $230, Apple’s average price paid per repurchased share was something like $113.  Suggesting they should have waited until now, apart from applying hindsight to the recent market disruption, is also to suggest Apple should not have been buying shares back at $80, 90, 100, etc...  Rest of your comment, regarding Apple management being novices, not doing what they are supposed to be doing, etc, falls completely apart in light of the facts, doesn’t it?  
    edited December 2018
  • Reply 51 of 152
    radarthekatradarthekat Posts: 3,574moderator

    bwik said:
    Without addressing the elementary basic definition of stock buybacks, I will say that it is entirely possible to make hundreds of billions of dollars disappear if you do big stock buybacks at high prices before share prices fall.  For example, GE used to be worth 600 billion dollars, now worth about 70.  So over 500 billion dollars in market cap was lost, or around 90% of value disappeared.  IF they sank $200 billion into stock buybacks during the max share price period, then $180 billion of that money simply disappears.  There are not many ways to make 180 billion in cold hard cash just disappear, but share buybacks at this scale is one of the ways.  

    I don't think AAPL will fall 90%, but any steward of say $200 billion needs to think about that.  They had US dollars and they decided to vastly increase the risk of that asset by investing it in Apple stock at a very high price.  
    It’s not the buyback that tanked GE.  That’s a huge point.  A mismanaged company would likely have found another way to waste $200 billion, or however much GE spent on buybacks.  It’s the mismanagement that destroys value, buybacks have zero to do with that. 
    edited December 2018
  • Reply 52 of 152
    radarthekatradarthekat Posts: 3,574moderator

    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.  
    tmay
  • Reply 53 of 152
    hexclockhexclock Posts: 1,089member
    hexclock said:
    hexclock said:
    Who gives a flying hoot whether it was good or bad for Apple. Stealing poor people's healthcare and giving the money to the rich was horrendous public policy.

    We were promised increased investment, not stock buybacks for Apple shareholders. That didn't happen.
    Oh yeah? Stealing my entire tax return three years straight because I didn’t have (or need) health insurance was a pretty horrendous policy as well, which thankfully, has ended. 
    With guaranteed issue health insurance available to all, the mandate was necessary to insure that people didn't wait till they got sick to purchase insurance.   That would destort and potentially destroy the market -- and force those who had taken insurance to pay for those who waited till they got sick.

    Sorry, you lost your free ride.
    Yes I know how it worked. And what free ride are you talking about? I was not utilizing any social services. Just working my job. If anything, my money was paying for other people’s free ride, and still is!
    I believe GeorgeB was suggesting that you were consciously employing the strategy of holding back on buying insurance intending only to get onboard if you had an expensive injury or developed an expensive condition.  I’m living overseas the past couple years, and this allows me an exemption, because the government recognizes that I could not actually benefit from affordable care act insurance even if I had it, as virtually no hospitals or doctors anywhere outside the states accept it.  My own stance on self insuring is that I actually intend to be responsible for my fate, not dump any costs back on the American people.  I, for one, feel we should each have that right, but in exercising it, we should not easily be given an out.  The part of the law that allows the uninsured to come back in once they develop some expensive ailment or sustain an expensive injury should be means tested; you should have to spend a fair percent of your own net worth first, before any costs are dropped on the rest of society.  Thats just my view, and I bet it closely matches yours.  But George might not agree. 
    Yeah maybe I misinterpreted his statement, and if I did I apologize. I looked into the exchanges (I live in NYS), and the fact was that the rates were rediculously high. It’s already expensive to live here, and the healthcare would have taken me to the brink. I just think it was poorly executed and did nothing to make healthcare more affordable. Anyway this is way off topic but an interesting discussion nonetheless. 
    radarthekat
  • Reply 54 of 152
    Give me a break people. Apple has been steadily buying back its own shares for years now, and have been profitable in doing so. It is only if you look at isolated periods of stock prices when it looks like a bad idea. Why anyone wants to look at just the last quarter is myopic — and uninformed.
    radarthekattmay
  • Reply 55 of 152
    zoetmbzoetmb Posts: 2,639member
    Who gives a flying hoot whether it was good or bad for Apple. Stealing poor people's healthcare and giving the money to the rich was horrendous public policy.

    We were promised increased investment, not stock buybacks for Apple shareholders. That didn't happen.
    I disagree.  While I think that's true for many companies, it's not true for Apple as their employee count has risen considerably and they've announced a number of new facilities.   And, outside of retail, they also pay pretty well.   Apple employees get healthcare (I don't know how much they have to pay for it).

    I do agree that stealing the healthcare of poor and working class people to give the rich a tax cut was poor public policy.   In fact, even if it didn't affect healthcare, giving a tax break primarily to the rich and increasing the deficit was poor public policy.   
  • Reply 56 of 152
    My guess is that they're also trying to lower the number of shares being sold by people trying to manipulate the stock. Fewer shares available, fewer people who will be trying to short the stock all the time. Either way I'd prefer to see Apple give the money back to their employees ... you know the people who actually earn the money.
  • Reply 57 of 152
    gatorguygatorguy Posts: 23,510member
    My guess is that they're also trying to lower the number of shares being sold by people trying to manipulate the stock. Fewer shares available, fewer people who will be trying to short the stock all the time. 
    Isn't spending $250B+ on artificially increasing the demand for Apple stock via a "buyback and destroy" plan in itself a method of manipulating Apple stock price? What would the price be if they hadn't gone down that road? 
    edited December 2018 mdriftmeyermuthuk_vanalingam
  • Reply 58 of 152
    Buybacks are equivalent to (untaxed!) dividends. Compare a 1% buyback with a 1% dividend: 1) they cost the company the same dollar amount. 2) after the buyback you own 1% more of the company, exactly the same as if you reinvested the dividend (ignoring tax). If you prefer the cash, just sell 1% of your holding and your share of the company and its profits remains the same, just as if you received a 1% dividend.

    The current slump in share price is a big windfall for shareholders because of Apple's big buybacks. If the share price had remained at $220 there would be no talk of 'bad investment' but Apple would have had to spend several billions more for the same number of its own shares. As long as I don't need to sell right now, I greatly prefer the low share price!
    applejakesradarthekat
  • Reply 59 of 152
    dysamoriadysamoria Posts: 3,430member
    I love how people argue over how to best to profit from a system that is inherently and fundamentally flawed and destructive to society. It’s the wrong argument, but hey, self interest...
  • Reply 60 of 152
    GeorgeBMacGeorgeBMac Posts: 11,421member
    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".
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