Stocks Up $1T Since October
bloomberg.com
bloomberg.com
stocks keep going up while only a minority benefits and not much is returned into actual growth http://michael-hudson.com/2017/08/stock-on-trumponomics/
I wouldn’t consider the text very accurate in hindsight.
1. It signals to investors that the company is confident and low risk. (Research and development is considered high risk.)
2. It makes the company more purely itself, it doesn't have shares backed by cash that drag back its price growth. If people expect future growth this means that growth per share will be higher, so they would start buying now to get some of that future higher growth. (Of course in addition to magnifying growth it also magnifies decline.)
An interesting thing is that this article says
> Stock buybacks can have a mildly positive effect on the economy overall.
Which seems to contradict what that previous article said. This article also says that stock buybacks will cause other companies to do more research and development.
In a way, the company has an earnings yield of EPS/stock price (or inverse PE). If the company cannot invest the money in its operations that makes a larger return that the earnings yield then the stock is actually a better investment. The huge issue is that when markets crash is when technically a company should be buying back tons of its stock but rarely do companies ever do this and instead elect to hoard cash when buybacks are best & spend money on buybacks when it’s the worst ROI (when the market is hot & earnings yield is minimal).
So if a company just keeps offering to buy stock at a high enough price to match existing sell orders it'll push the price of a stock up.
Whether that's sustainable in the long run is a different story, but there's no ironclad mathematical relationship.
Buyback volume is comparable to dividend volume [1]. Both return cash to investors. From a macro perspective, focussing on one over the other is misleading.
Buyback and dividend cash can be consumed or re-invested. Given corporate buybacks pale in comparison to broader funds flows, it looks like it's being reinvested.
Even if every investor selling into a buyback consumed the cash, those buybacks are largely being funded by debt. On the net, that translates to investors hopping up the capital structure. Not exiting the capital markets.
from a societal perspective, it's a tax "refund" for the wealthy to enable stock buybacks over dividends, since capital gains are taxed less, and can be tactically spread out by in time to minimize the effective rate. At the same time, a company's spending on stock buybacks are considered an expense (rather than a capital expenditure), therefore decreasing the tax bill on a company's balancesheet.
I think stock buybacks should cost the company the same as dividends - that is, they should be taxed at the same rate, and also not be considered an expense that they can offset taxes from.
If you can't benefit from the S&P going up 30% in a year, I'm not sure what anyone can do for you.
So I went for an all-weather portfolio. This has allowed me to sleep well at night while staying invested (and even adding to my investments).
Fast forward a few years, there's regret one didn't invest, but now the market is as high as it will ever go, so not investing again.
Rinse, repeat. A lifetime of missed opportunity.
Dot com bubble, 9/11, 2008 recession
My point is the people who don't invest do think that way, and so don't invest. Most investors also think that way, which is why they sell their winners, and hence have below-market returns.
Me, I never sell my winners. This seems to be a highly unusual strategy. I'm still holding stock I bought 40 years ago.
For them, I recommend investing after 3 years of a sustained market direction from an inflection point.
Defining an inflection point is subjective, particularly a few years after it. Late 2008 was a crash; 2011 featured lots of hand-wringing around QE, "green shoots" and the like.
It's clear now. But (a) there are lots of starts that stall and (b) it's impossible to differentiate them 3 years afterwards.
At the end of the day, timing the market is incredibly difficult. When one decomposes returns of the world's top investors, timing is pretty much random.
2008 was the bottom and it went up for 3 years. You would see that by 2012 so buy in. That's it. That's the entire rule/suggestion. There's no "timing the market" needed.
“Invest 3 years after an inflection point” is an attempt at timing the market.
For every 2008, there are ‘54 and ‘57; ‘70 and ‘73; ‘80 and ‘81; et cetera.
It doesn't matter if it goes down again, once you invest you stay invested. The rule was a simple guide on when to get in. Or you can just stay out forever.
“Timing the market” means incorporating timing and/or peak-to-trough measures in investment decisions. When you’re not asking “which assets should I buy” and instead “when should I buy them,” you’re trying to time the market.
Research is pretty consistent in showing almost all timing strategies are inferior to consistent investment, e.g. investing $X per month, regardless of your views on where the market is relative to what you believe to be an inflection point.
On the buying side, you could spread out the buying over several chucks to "spread the risk", but again numbers show that the optimal strategy is to buy in 1 go, right now.
It's a conscious decision. What I do is think "what would my strategy be if I was investing Monopoly money". When there's a large divergence with what I do with real money, I then try to reconcile the two.
The more you can deal with your cognitive biases (such as the sunk cost fallacy) the better your investment decisions will be.
Again, this is a conscious choice. You're not a slave to your emotions - that's what makes people different from animals.
It's amazing that once you become super rich, everything you say becomes a wisdom quote unless you're Trump of course.
Say, lock it down at $10 million USD, or to some ratio of the national minimum wage.
Once you get that much, then you must tap out. Live the rest of your life in the sunset, but you can no longer accrue any more money or wealth.
And if you want to accrue more, then you must be in some non-profit business where your mission is to spread the wealth, and to create a better society for all. Then, your maximum level can be bumped up to $100 million (or to some higher ratio of the national minimum wage).
This concept of unbridled and unbounded capitalism has severely gone too far. The rich and the wealthy are seriously misbehaving, and they need to self-regulate and reign in their excesses, before the public gets fed up with their misbehavior, and vote in politicians that will force a policy change on them.
LOL. I say that, and I laugh, because we all know that the politicians are just the fox guarding the hen house, and they’ll never let this happen.
As John McCain said, the people are waging class warfare on the rich. The thing he forgot to mention, is that the rich are slaughtering the rest of us.
Even if I'm wrong about my judgement of any individual or even if these people are not representative, could you think about modifying your position to at least focus on the principle I'm trying to get at: A billionaire who lives like a pauper, should not be treated the same as one who lives like a spoiled prince. You could for example advocate for luxury consumption taxes on mansions, yachts, cars, jewelry etc. rather than taxes on capital.