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.)
Nice thought experiment. But Apple did not start paying large dividends & making stock buybacks because they had more cash than they knew what to do with (nice fantasy!) nor because they thought it was the best use of their money. Rather, it was corporate raiders/activists like Carl Icahn who forced them to start paying out big bucks to stock holders. It was not a decision made in the best interests of the business but in the best interests of stock holders.
It would have been interesting if Steve had been around to confront Icahn. I would not have been pretty. But, with nearly $7Billion in Apple shares, Icahn carried a lot of weight:
"Icahn revealed to CNBC's Scott Wapner on Tuesday [5/19/2005] the only thing he actually wants from the company. Which is basically the only thing he's ever wanted from Apple.
"We put this letter out for one purpose, Scott, to get the company to buy back more stock," Icahn said. "The one thing I disagree with the company on is not buying a great deal more stock here ... that's all I'm saying."
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.
"...did nothing to make healthcare more affordable" It didn't. And, it was never designed to. That was a misconception.
What it was designed to do was eliminate the problem where people with pre-existing conditions were excluded from buying insurance or intentionally priced out of the market. Basically, the insurers kept their premiums lower than they would normally have been by excluding the sick from coverage. It was a serious problem that impacted nearly 50 million people and the ACA fixed it.
The weird thing about the whole debate is that it is really over "who pays and how". But that will never bring down costs -- because they are generated by the large providers (hospitals, etc) and the insurers (whether private or pubic) simply pass those costs on. The U.S. has done nothing to reign in the out of control costs from those providers -- and we continue to spend $3.5Trillion a year on healthcare (enough to pay the defense bill for the next 4-5 years!)
Eventually, we will be forced to actually "make healthcare more affordable"
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.)
What about paying Apple Store employees more? Maybe increasing benefits, perhaps even extending them to part-time employees?
Consider increasing what they're willing to pay support staff like receptionists and cleaning crews and various and sundry "assistants. Don't penny-pinch contractors and component providers so hard so that those companies can afford to pay their employees a little more?
IMO all of those things would benefit the economy more than a stock buyback which benefits the 1%'ers and Apple executive team whose pay comes from stock grants and stock performance bonuses (odd how that works out huh?). And Apple would still bank billions in profit after taking care of the little people better. A plus? The great PR they'd get from doing so. I don't see a loser in that scenario.
As a side bonus it also improves the odds that those closer to minimum wage Apple employees, and contractors employees, and "partner company" employees could afford to buy nice Apple gear and bring them firmly into the Apple fold.
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.
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.
Since when is it Apple’s responsibility to stimulate the economy (for that matter, since when is it the responsibility of the Federal government to stimulate the economy)? Their legal responsibility is for them to make a profit.
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.)
What about paying Apple Store employees more? Maybe increasing benefits, perhaps even extending them to part-time employees?
Consider increasing what they're willing to pay support staff like receptionists and cleaning crews and various and sundry "assistants. Don't penny-pinch contractors and component providers so hard so that those companies can afford to pay their employees a little more?
IMO all of those things would benefit the economy more than a stock buyback which benefits the 1%'ers and Apple executive team whose pay comes from stock grants and stock performance bonuses (odd how that works out huh?). And Apple would still bank billions in profit after taking care of the little people better. A plus? The great PR they'd get from doing so. I don't see a loser in that scenario.
As a side bonus it also improves the odds that those closer to minimum wage Apple employees, and contractors employees, and "partner company" employees could afford to buy nice Apple gear and bring them firmly into the Apple fold.
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.)
What about paying Apple Store employees more? Maybe increasing benefits, perhaps even extending them to part-time employees?
Consider increasing what they're willing to pay support staff like receptionists and cleaning crews and various and sundry "assistants. Don't penny-pinch contractors and component providers so hard so that those companies can afford to pay their employees a little more?
IMO all of those things would benefit the economy more than a stock buyback which benefits the 1%'ers and Apple executive team whose pay comes from stock grants and stock performance bonuses (odd how that works out huh?). And Apple would still bank billions in profit after taking care of the little people better. A plus? The great PR they'd get from doing so. I don't see a loser in that scenario.
As a side bonus it also improves the odds that those closer to minimum wage Apple employees, and contractors employees, and "partner company" employees could afford to buy nice Apple gear and bring them firmly into the Apple fold.
While I agree with that on an ethical and moral basis.... The fact remains that giving profit away does nothing to improve the business. In fact, it degrades the business.
While the government (should be) in the business of helping the people of this country, Apple should be in the business of helping Apple -- meaning reinvesting their profits to build more products, better products and cheaper products. Sometimes that involves giving out raises to attract and keep better talent. But usually its investing in infrastructure and R&D.
I am sensitive to that issue -- partly because of my business & financial analysis background. But also because I watched the American steel industry squander its profits in exorbitant wages & benefits (both to blue and white collar employees -- of which I was one), dividends to stockholders, and investments into other industries -- then the Japanese stepped in and crushed them because they had invested in modern mills while our industry sat there with 100 year old technology. If the American steel industry had invested its profits to modernize instead of spending them on non-productive uses, we might still have a steel industry.
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.
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.
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.
"...did nothing to make healthcare more affordable" It didn't. And, it was never designed to. That was a misconception.
What it was designed to do was eliminate the problem where people with pre-existing conditions were excluded from buying insurance or intentionally priced out of the market. Basically, the insurers kept their premiums lower than they would normally have been by excluding the sick from coverage. It was a serious problem that impacted nearly 50 million people and the ACA fixed it.
The weird thing about the whole debate is that it is really over "who pays and how". But that will never bring down costs -- because they are generated by the large providers (hospitals, etc) and the insurers (whether private or pubic) simply pass those costs on. The U.S. has done nothing to reign in the out of control costs from those providers -- and we continue to spend $3.5Trillion a year on healthcare (enough to pay the defense bill for the next 4-5 years!)
Eventually, we will be forced to actually "make healthcare more affordable"
Offering more affordable coverage was definitely used as a way to sell this healthcare and convince folks it was a good thing.
So so no it wasn’t a misconception, it presented this way. I was let down when I realized eventually that this wasn’t the case.
I do agree however that it was never designed to make anything cheaper, and concentrated on making coverage more affordable for those with pre existing conditions.
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".
You are completely incorrect. There is no evidence to substantiate such a claim.
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.
So, you are saying giving away their money is a better investment than in themselves? That's very altruistic of them. But its a pretty low bar for an investment.
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".
You are completely incorrect. There is no evidence to substantiate such a claim.
You lack of knowledge does not affect the truth. Sorry.
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).
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.
So, you are saying giving away their money is a better investment than in themselves? That's very altruistic of them. But its a pretty low bar for an investment.
No, that's why Apple first spends what it thinks makes sense on, e.g., R&D. It's only what's left over after it spends on such things which is returned to shareholders.
Buying cows may be a better investment for a farm than buying exercise equipment. But once you've bought all the cows the farm can handle - where buying more would, in your assessment, be a waste (for any of a number of reasons) - then maybe it makes sense to spend some of the money that's left on something else, like a nice exercise room to help keep you in good health.
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 the profit itself which stimulates the economy (well, it does, in another way I'll allude to in a minute), it's the quest for profit. When people invest in businesses, they do so in large part in order to see returns - profit. Their investing in businesses facilitates greater economic activity and job creation. Their realizing profits on their investments encourages them to keep investing, and encourages others to do the same. People take jobs and do work, in large part, in order to be paid. If they weren't going to be paid, why would they do the work? If an investor didn't think they'd make money by investing money which they already have, why would they (limited contexts aside) invest it? So stock buybacks and profit more generally do stimulate the economy. We are as prosperous as we are today in part because of the innovation of equity investment.
As for the money not going into circulation: What happens to it then? Do you think people who sell stocks largely put the proceeds under their mattresses? What could they be doing with it such that it isn't in circulation? Really, it never comes out of circulation. It's more a question of which path it immediately follows next (as it remains in circulation) and what affect that might have on its velocity (and that of the money in the economy in the aggregate).
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".
You are completely incorrect. There is no evidence to substantiate such a claim.
There is circumstantial evidence...Icahn had so many shares it’s hard to cash out without impacting price. Buybacks are one vehicle for large investors to get out without impacting share price. Look at Dan Loeb and Yahoo!. Yahoo! bought $1B of his shares in a buyback after he advocated for and helped get Mayer in.
I can see a scenario where Icahn is enough of a pain in the ass that Apple bought some or all of his 45.8M shares to help him go away and bother someone else.
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.)
What about paying Apple Store employees more? Maybe increasing benefits, perhaps even extending them to part-time employees?
Consider increasing what they're willing to pay support staff like receptionists and cleaning crews and various and sundry "assistants. Don't penny-pinch contractors and component providers so hard so that those companies can afford to pay their employees a little more?
IMO all of those things would benefit the economy more than a stock buyback which benefits the 1%'ers and Apple executive team whose pay comes from stock grants and stock performance bonuses (odd how that works out huh?). And Apple would still bank billions in profit after taking care of the little people better. A plus? The great PR they'd get from doing so. I don't see a loser in that scenario.
As a side bonus it also improves the odds that those closer to minimum wage Apple employees, and contractors employees, and "partner company" employees could afford to buy nice Apple gear and bring them firmly into the Apple fold.
Do you believe it's only 1%'ers that own corporations such as Apple? Apple is, almost by necessity, pretty widely held. Lots of people, to include those we might consider middle class, effectively own part of Apple. It's how people invest, e.g., their retirement savings. And when they feel wealthier (e.g. because their savings increase in value), they tend to spend more. Something similar is true for 1%ers. If they have more money, they have more money either to spend or to invest. Such things stimulate the economy.
As I indicated in the previous post, it's the expectation of returns which mostly drives investment - in new ideas, in start-ups, in small local businesses, in established businesses, more generally in the expansion of economic activity and creation of jobs. The idea that something which benefits shareholders only benefits shareholders (especially only 1%'ers) is silly. Most all of us have benefited greatly from equity investment, whether directly or indirectly (or, for a large portion of us, both).
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.
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.
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?
Comments
It would have been interesting if Steve had been around to confront Icahn. I would not have been pretty. But, with nearly $7Billion in Apple shares, Icahn carried a lot of weight:
"Icahn revealed to CNBC's Scott Wapner on Tuesday [5/19/2005] the only thing he actually wants from the company. Which is basically the only thing he's ever wanted from Apple.
"We put this letter out for one purpose, Scott, to get the company to buy back more stock," Icahn said. "The one thing I disagree with the company on is not buying a great deal more stock here ... that's all I'm saying."
It didn't. And, it was never designed to. That was a misconception.
What it was designed to do was eliminate the problem where people with pre-existing conditions were excluded from buying insurance or intentionally priced out of the market. Basically, the insurers kept their premiums lower than they would normally have been by excluding the sick from coverage. It was a serious problem that impacted nearly 50 million people and the ACA fixed it.
The weird thing about the whole debate is that it is really over "who pays and how".
But that will never bring down costs -- because they are generated by the large providers (hospitals, etc) and the insurers (whether private or pubic) simply pass those costs on. The U.S. has done nothing to reign in the out of control costs from those providers -- and we continue to spend $3.5Trillion a year on healthcare (enough to pay the defense bill for the next 4-5 years!)
Eventually, we will be forced to actually "make healthcare more affordable"
Consider increasing what they're willing to pay support staff like receptionists and cleaning crews and various and sundry "assistants. Don't penny-pinch contractors and component providers so hard so that those companies can afford to pay their employees a little more?
IMO all of those things would benefit the economy more than a stock buyback which benefits the 1%'ers and Apple executive team whose pay comes from stock grants and stock performance bonuses (odd how that works out huh?).
And Apple would still bank billions in profit after taking care of the little people better. A plus? The great PR they'd get from doing so. I don't see a loser in that scenario.
As a side bonus it also improves the odds that those closer to minimum wage Apple employees, and contractors employees, and "partner company" employees could afford to buy nice Apple gear and bring them firmly into the Apple fold.
While I agree with that on an ethical and moral basis.... The fact remains that giving profit away does nothing to improve the business. In fact, it degrades the business.
While the government (should be) in the business of helping the people of this country, Apple should be in the business of helping Apple -- meaning reinvesting their profits to build more products, better products and cheaper products. Sometimes that involves giving out raises to attract and keep better talent. But usually its investing in infrastructure and R&D.
I am sensitive to that issue -- partly because of my business & financial analysis background. But also because I watched the American steel industry squander its profits in exorbitant wages & benefits (both to blue and white collar employees -- of which I was one), dividends to stockholders, and investments into other industries -- then the Japanese stepped in and crushed them because they had invested in modern mills while our industry sat there with 100 year old technology. If the American steel industry had invested its profits to modernize instead of spending them on non-productive uses, we might still have a steel industry.
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.
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.
https://familiesusa.org/product/how-affordable-care-act-makes-health-coverage-more-affordable
So so no it wasn’t a misconception, it presented this way. I was let down when I realized eventually that this wasn’t the case.
I do agree however that it was never designed to make anything cheaper, and concentrated on making coverage more affordable for those with pre existing conditions.
That's very altruistic of them. But its a pretty low bar for an investment.
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).
Buying cows may be a better investment for a farm than buying exercise equipment. But once you've bought all the cows the farm can handle - where buying more would, in your assessment, be a waste (for any of a number of reasons) - then maybe it makes sense to spend some of the money that's left on something else, like a nice exercise room to help keep you in good health.
As for the money not going into circulation: What happens to it then? Do you think people who sell stocks largely put the proceeds under their mattresses? What could they be doing with it such that it isn't in circulation? Really, it never comes out of circulation. It's more a question of which path it immediately follows next (as it remains in circulation) and what affect that might have on its velocity (and that of the money in the economy in the aggregate).
I can see a scenario where Icahn is enough of a pain in the ass that Apple bought some or all of his 45.8M shares to help him go away and bother someone else.
As I indicated in the previous post, it's the expectation of returns which mostly drives investment - in new ideas, in start-ups, in small local businesses, in established businesses, more generally in the expansion of economic activity and creation of jobs. The idea that something which benefits shareholders only benefits shareholders (especially only 1%'ers) is silly. Most all of us have benefited greatly from equity investment, whether directly or indirectly (or, for a large portion of us, both).
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.
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.
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?