[john_moscow]

The stock market in general is moving in a strange direction in the past decade.

•First the dividends became the thing of the past as the companies argued that stock buybacks are more tax-efficient. The general public accepted it.

•Then the earnings per share disappeared and loss per share became standard. The argumentation was that it's better to invest in growth today and figure out profitability "some other day". The public ate it with not much questioning.

•Then it was the voting rights' turn to go with IPOs like SNAP. It raised some concerns (like being excluded from the S&P 500), but didn't stop people from investing either.

So if the general public keeps on bringing the money in despite the worsening conditions, it makes sense that someone would come up with even a bolder plan for turning this condition into their personal profit.

I blame the agency problem [1]. Too many investment decisions these days are made by someone investing someone else's money and their interests could be different from simply maximizing the returns and too many people blindly trust their money to be managed by someone else without fully understanding the underlying processes.

1. http://www.investopedia.com/terms/a/agencyproblem.asp

[JackFr]

I don't think you're completely correct about EPS in the broader market, (but correct in the headline names). The rest I agree with completely. What's surprising to me is that there wasn't some sort of retrenchment after the 2007-8 crisis.

I agree with your analysis about the agency problem, but I also see the it as too much money chasing too few assets. Ever desperate for return, money managers will chase anything that has a return, whether it's rational or not.

[csomar]

We are still too early in the bubble cycle. The returns are higher every year but they are linear. Wait until the public comes (free money?) and discover this; and then you get a parabolic market run and a subsequent crash.

[ojbrien]

1. You seem to be implying that there's something wrong with share buybacks but aren't explicitly stating it. I'd be curious to know what your criticism of share buy backs is?

2. Anecdotally, I still think EPS is by far the more widely used metric. EPS numbers can be negative so there's not much use for loss per share numbers, and most public companies have positive earnings.

3. This I agree with, SNAP's lack of voting rights is really concerning and initially SNAP didn't seem to traded at a discount because of that. It's worth noting it's down over 40% from the price it traded on the day it went public, although potentially for other reasons.

I also generally agree that people would be far better off if they educated themselves a little better on what they have their money invested in.

[tardo99]

The issue with share buybacks is they are designed to increase the share price rather than provide a cash return to existing investors. To a common stockholder, the two outcomes are basically the same (minus maybe some tax differences). But to a common optionholder, they are vastly different. Optionholders typically can't benefit from dividends, whereas they do benefit from the share price increasing.

This matters because management is often paid in options. So, managements have an incentive to allocate capital to share buybacks to boost their pay packages instead of reinvesting money in the business. If share buybacks were illegal and the only two options were dividends and keeping the capital in the business, managements might behave very differently.

[aidenn0]

I don't think it's agency; I think it's the fact that non-equity based investments have had terrible returns for a decade now. What are you going to do? Invest in a CD?

[lambdadmitry]

That's fascinating, in a sense shares become closer to ICO tokens (no obligations, no control and no dividends).

I believe we can also blame regulators for that. Most banks have extremely low rates nowadays, which is (AFAIK) deliberate to incentivize investment in the stock market. So there is a power imbalance between investors (who have no other choices) and investees, which manifests as rules shifting in favor of investees.