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

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  • Reply 141 of 152
    I certainly understand wanting more in dividends right now.  If they gave 100% in dividends it would be around $12.50 per share right now.  And with growth in earnings that could reach $15-20 per share in 10 years or so.

    But dumb old me can see the potential for that to be $40-50 per share when buybacks are concluded.  Maybe more.  With that high of a dividend the stock price would be through the roof as well.  This will happen at some point if you have a positive long term outlook for Apple.

    My 10 year target is about 1.5 billion shares outstanding with about $75 billion in earnings.  I suspect the earnings could be much higher.
    tmay
  • Reply 142 of 152
    radarthekatradarthekat Posts: 3,572moderator
    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.
    The poor are not so poor as they were a generation ago. 

    https://youtu.be/hVimVzgtD6w
  • Reply 143 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.
    The poor are not so poor as they were a generation ago. 

    https://youtu.be/hVimVzgtD6w
    That's true.    Compared to 2008.   ZIRP and QE stimulated the economy and pulled many out of poverty and then the Tax Scam piled on.   But, at this point, both government and corporate debt are over double what they were before the Great Recession and threaten to pull down that house of cards. 

    We never actually dealt with either problem that ultimately were the result of the demise of American industry.   We just borrowed our way around them.  There is a lot more that we have to rebuild than just roads and bridges.
  • Reply 144 of 152
    radarthekatradarthekat Posts: 3,572moderator
    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.
    The poor are not so poor as they were a generation ago. 

    https://youtu.be/hVimVzgtD6w
    That's true.    Compared to 2008.   ZIRP and QE stimulated the economy and pulled many out of poverty and then the Tax Scam piled on.   But, at this point, both government and corporate debt are over double what they were before the Great Recession and threaten to pull down that house of cards. 

    We never actually dealt with either problem that ultimately were the result of the demise of American industry.   We just borrowed our way around them.  There is a lot more that we have to rebuild than just roads and bridges.
    That’s a very U.S. centric view. I was trying to show you the bigger picture.  
  • Reply 145 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.
    The poor are not so poor as they were a generation ago. 

    https://youtu.be/hVimVzgtD6w
    That's true.    Compared to 2008.   ZIRP and QE stimulated the economy and pulled many out of poverty and then the Tax Scam piled on.   But, at this point, both government and corporate debt are over double what they were before the Great Recession and threaten to pull down that house of cards. 

    We never actually dealt with either problem that ultimately were the result of the demise of American industry.   We just borrowed our way around them.  There is a lot more that we have to rebuild than just roads and bridges.
    That’s a very U.S. centric view. I was trying to show you the bigger picture.  
    Yeh, with a few unfortunate exceptions, on a world view that is very definitely true....  
  • Reply 146 of 152
    Too many idiots feeling free to make stupid comments ... thats the journalism of today. Buyback are not an investment in value gain.. They are intended to reduce share count and boost eps.. Share values are directly effected by eps. In the long run.. actually this massive drop in share prices is a great thing for the buyback program. Many more shares can be bought back and retired.
    Announcing that the company will buy back shares regardless of the price may prop up the price temporarily but then why even bother? I haven't read anything about repurchased shares being retired. They are being held as treasury shares and shouldn't affect the stock price or earnings per share.

    Companies repurchase stocks for employee stock purchase programs or for executive compensation. Not getting good prices on these repurchases can't be helped and the cost is probably treated as an expense.

    Apple leadership can barely sustain a complex company's momentum and now they're blindly announcing stock repurchases like Caesar. Could they not think of something to invest in with the billions they lost on the trade?

  • Reply 147 of 152
    gatorguygatorguy Posts: 23,510member
    ericG721 said:
    Too many idiots feeling free to make stupid comments ... thats the journalism of today. Buyback are not an investment in value gain.. They are intended to reduce share count and boost eps.. Share values are directly effected by eps. In the long run.. actually this massive drop in share prices is a great thing for the buyback program. Many more shares can be bought back and retired.
    Announcing that the company will buy back shares regardless of the price may prop up the price temporarily but then why even bother? I haven't read anything about repurchased shares being retired. They are being held as treasury shares and shouldn't affect the stock price or earnings per share.
    Nope, absolutely not treasury stock. They're retired, burned, dust in the wind.
  • Reply 148 of 152
    carnegiecarnegie Posts: 1,016member
    An update...

    With AAPL closing today at $249.05, Apple is effectively about $300 billion ahead on its share repurchases. As of the end of its FY 2019 third quarter it had spent about $285.7 billion to repurchase about 2.327 billion shares at an average price of $122.77. Accounting for dividend savings and reduced net interest income resulting from the share repurchases (and the money which needed to be borrowed to facilitate them), those repurchases have an effective present-day cost of around $280 billion.

    At the current share price, those 2.327 billion shares would be worth about $580 billion. Put another way, for AAPL to have the same share price as it does today without it having repurchased those shares, its market cap would need to be $580 billion higher than it currently is (which is about $1.13 trillion) based on Apple still having that $280 billion. I don't think that's likely. I think, at best, the market would value that additional money on the books at 1:1.

    Apple, of course, doesn't still hold the 2 billion plus shares which it repurchased. But if, for some reason, it wanted the money it spent on those shares back, it could issue new shares and sell them. Doing that would likely suppress the share price somewhat, but if done over time it might not have too large an affect. If Apple sold 2.327 billion shares at an average equal to the current share price, it would raise the $280 billion plus an extra $300 billion or so. Even if Apple sold new shares at an average price $100 below where it closed today, it would raise the $280 billion plus more than $60 billion extra. Apple, of course, isn't going to do that. It doesn't, and isn't likely to, need the money. But that's the point of the repurchases. This is money that Apple has left over after it does whatever it thinks makes sense to do with its retained earnings (and operating revenue).

    The point is... at this point, it would be pretty hard to (credibly) argue that Apple's share repurchases (taken as a whole) represented a bad investment. (Yes, I realize the report referred to in the OP wasn't referring to Apple's share repurchases as a whole. I'm not responding to that report in particular. But even Apple's 2018 share repurchases look, at this point, nothing like a bad investment.)

    For perspective, Apple has about $325 billion in (after tax) earnings since (and including) FY 2013, when it started repurchasing shares.
  • Reply 149 of 152
    carnegiecarnegie Posts: 1,016member
    Apple has now been buying back shares for 10 years. The buybacks started with an accelerated share repurchase agreement worth up to $1.95 billion which Apple entered into in August 2012.

    Since then Apple has repurchased 11.66 billion shares at a total cost of $529.1 billion and an average share price of $45.37. As of its last reporting Apple had 16.07 billion shares outstanding, meaning the shares repurchased over the last 10 years represent 42% of the shares which would otherwise be outstanding.


  • Reply 150 of 152
    Nice bump.

    Looks like my prediction of $75 billion in earnings in 10 years(post 141) was slightly off!! As well as my share count.
  • Reply 151 of 152
    The poor are not so poor as they were a generation ago. 

    https://youtu.be/hVimVzgtD6w

    The video is describing world-wide macro trends.  The discussion is really about US-centric trends.

    Some historical perspective: The current acceptance that unlimited stock buybacks is ‘healthy’ for the economy or is a sign of a healthy company, or even good in the long-term for investors (rather than speculators) is a fallacy begun in the 1970s.  This askew disconnect began with the focused opinion theory of Milton Friedman, who promoted the concept that corporations have but one party to whom they answer, the 'owners'. Prior to that, much of corporate culture considered all the stake-holders: the owners, management and the rest of the employee workforce, the customers, the vendors and the community.

    A consultancy called McKinsey ran with that idea, selling their opinions to receptive BODs and C-suite execs. McKinsey became the go-to corporate advisors for squeezing profits and redirecting resources to the shareholders alone. Counseling companies on how to be more 'efficient', how to cut benefits and payroll, how to maximize lifespans of existing infrastructure (is it more cost effective to modernize or allow a facility/process to run until it rusts out from under), how to offshore labor, technology support and manufacturing, and how to use corporate resources to influence government regulation. This came to a climax when lobbyists (gee, I wonder who) convinced the neo-cons overseeing the SEC in '83 to allow unfettered stock buybacks by public companies. [The next time a politician bloviates about the evils of regulation and promotes budget cuts to regulatory staff, look to see who owns him or her.]

    Rather than profits being reinvested in wages, or R&D, or infrastructure, companies have for 4 decades been following the McKinsey method, reinforced by famous graduate 'Schools of Business' as how 'modern companies operate'. Stock buybacks in particular have been toxic. Many C-suiters and BODs benefit directly, as they have both stock options and performance bonuses. Bonuses are often structured based on one major metric: the EPS improvement during a mgmt's reign. If the EPS goes up, the bonus metrics are made --, regardless of whether the share prices actually rise in the long-term. Anyone can do the math: buy back a bunch of stocks, and even if the share price hasn't moved a penny, EPS rises. Bonus!  Measured quarterly, not long-term.

    Usually, share prices do rise on these artificial inflations due in part from the temporary 'good news' cycle that a company was profitable enough to buy back stocks. Such is the reasoning of Wall Street press. Note that previous to stock buybacks, more of that profit would have been funneled into dividends -- but we can't have that since dividends are taxable to the shareholder. Buybacks defer the tax obligation to when the shares are ultimately sold.  And that's risky, as we are seeing, as share value can plummet regardless of the sound foundations of a company due to outside market behavior.  I worked for a company of 300k employees that earmarked $24Billion+ to three years of buybacks. If mgmt had earmarked HALF of that money to raises, it would have been a $6.50/hr increase for each person over the same period.  All potential taxable income for governments and a lot of potential spend by a broad population that doesn't happen.  They'd still buy back $12Bil. McKinsey may be the most powerful consultancy ever, yet almost no one has heard of them.

    muthuk_vanalingamgatorguy
  • Reply 152 of 152
    ^ I have. In fact, used to work at a company called Mitchell Madison group that several McKinsey folks started.
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