Comment by runako | Hacker News Reader

Comment by runako | Hacker News Reader

Parent Full thread

> When you essentially lend money to GOOGL or AMZN, what are you actually getting back besides a story

Buying a stock is not lending money to a company. It's purchasing an ownership claim on future earnings realized by the company.

For AMZN, the expectation of its investors is that it should not realize substantial (relative to revenue) earnings now so that it can grow further and thereby increase the long-tail earnings to which shareholders are entitled.

GOOG, on the other hand, is returning money to shareholders now. In fact, they just authorized a program to return another $50B to shareholders. Our tax regime skews payout preferences, so that instead of paying dividends, some companies opt for share buybacks. But the net result is that cash is transferred from the company to its shareholders. You can see GOOGL's buybacks over time here, looks like they returned ~$31 billion to shareholders in 2020: https://ycharts.com/companies/GOOG/stock_buyback .

> It's purchasing an ownership claim on future earnings realized by the company.

Which, as I said, can be realized via dividends or the sale of the company.

I looked up their dividend returns. It ain't much.

Keep in mind that tax law highly incentivizes the avoidance of dividends.

We'll see (or maybe not). This business of involving the general public in stock ownership is a new thing, it really is new ground to cover.

> Keep in mind that tax law highly incentivizes the avoidance of dividends.

Combining Biden's capital gains tax, Federal estate tax, Biden's stepped up basis for estates, Washington state's estate tax, and Washington state's new capital gains tax, the top estate tax rate is now 70%.

This ensures that tax planning will dominate investment strategies, which usually results in suboptimal investing and subsequently a lower performing economy.

Whatever changes you think investors might react to need to be discounted by the likelihood of them being in a bill passed by Congress.

It’s not something I know a lot about, but it seems likely that Congress will make substantial changes to Biden’s proposals?

Changes depend on time. Biden is past the early magic 100 days and now members of the house (and 1/3rd the senate) are realizing that they need to prepare for their re-election campaign in less than a year. The longer things go on the more concerned they will be.

The democrats have the government today. The most democrat heavy handed set of bills will ensure that republicans take a veto-proof majority of both houses. Different levels of watered down will have different effects. There is a reasonable chance that no matter what they do they will lose the house next election (even passing bills that the republicans would like to author but wouldn't dare!), but the exact set of laws they pass will have a big effect on both who shows up, and how voters change their votes.

Or can be realized in a share buyback program, which are massive. Dividends and buybacks are just slightly differently structured ways to return profit to investors.

> can be realized via dividends or the sale of the company.

Keep reading my comment. Share buybacks are another way of returning cash to shareholders.

> involving the general public in stock ownership is a new thing, it really is new ground to cover.

There have been discount brokerages for 50 years now. I guess that's "new" as compared to how long there has been money, but I don't know that it's "new" in the sense that we can't determine whether buybacks do have the effect of returning cash to shareholders (they do). Share buybacks have been allowed since 1934.

Where does Amazon get all of the stock for employee compensation? Do they just have a large pool of outstanding stock in reserve?

I'm not sure about Amazon in particular, but generally companies (especially tech companies) hold some percentage of stock in reserve for employee compensation. However, the company can also buy back stock on the open market either to take it out of circulation (and thus increase the value of outstanding shares) or use it for employee compensation. Finally, if the board (as a proxy for individual owners) permits it, a company can issue new shares for any purpose including selling to raise cash for operations, or giving to employees as compensation. This isn't free money, however. New shares tend to dilute the value of existing shares. So owners often prefer to raise money other ways, like debt that doesn't convert to an ownership claim in the way stock does.

I don't know Amazon's specifics, but I believe that's how it's typically done.

It doesn't have to be that large a pool as percentage of the company.

Essentially they create them as they go.

Total shares outstanding plus outstanding stock awards:

    Dec 2011 : 468 million
    Dec 2012 : 470 million
    Dec 2013 : 476 million
    Dec 2014 : 483 million
    Dec 2015 : 490 million
    Dec 2016 : 497 million
    Dec 2017 : 504 million
    Dec 2018 : 507 million
    Dec 2019 : 512 million
    Dec 2020 : 518 million

Existing shareholders lose 1% per year.

Reply on news.ycombinator.com