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by mrep
2529 days ago
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> Something that I've wondered is, if a company has excess capital why not, instead of acquisitions, dividends, or buybacks, just buy an S&P 500 index fund? Because that would tie the value and riskiness of your company to the sp 500 which is inefficient as that effectively forces anyone who wants to invest in your company to also invest in the sp 500. Not everyone has a risk/reward preference that matches the sp 500. It's better to instead return profits to investors and let them reinvest into whatever they want. |
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However, the S&P 500 is approximately the same as the stock market, and so I think it's arguable that "everyone" together does have about the same risk/reward preference.
Buybacks, even if better in the best of all possible worlds, make it difficult to change your mind, whereas an index fund could simply be sold, rather than having to issue more stock. It seems like a lower-friction alternative to accomplish something economically similar.