[gzu]

Don't forget the non-emotional constant demand for Apple shares caused by stock buybacks combined with a 7% weight in the S&P 500. Every new dollar invested in an index tracking ETF/mutual fund needs to buy 7c worth of Apple stock from someone.

It's a huge supply/demand problem. At what price will someone forego Apple shares? What happens when Apple is 10%, 15% etc of the S&P 500 index? Where will these shares to sell come from? At this point, why would anyone holding Apple shares outright sell?

This demand may only lead to a self reinforcing feedback loop where: a greater market cap (3T?) -> higher index weight (10+%) -> greater buying pressure -> more shares locked up in index funds (not available for sale) -> repeat

This is explains why there has been increasingly volatile movements in Apple shares. This lack of share liquidity works both directions: buying and selling. Not enough active investors are available to step in when passive investors (who now make up an enormous portion of capital markets) decide to start selling index tracking funds in bulk.

[naveen99]

Share buy backs raise the share price, but not market cap. so if you have 101 shares of Apple. And Apple buys 1 of those shares back from you, not much has changed as far as who has more value.

[gzu]

Sure in a perfect world you decide to sell 1 share to Apple. The share price increases to account to for the lost share and market cap stays same.

In reality, enormous swaths of shares are held by index tracking funds and everyday investors who don’t sell their shares into buybacks. In this case the market price based off supply/demand must rise in order to find someone who will let go of a share so Apple can buy it.

[naveen99]

you haven't said anything new here. Price must rise to account for destruction of a share, but market cap stays the same... (price / share goes up, price / fraction of company stays the same)

[rubber_duck]

>price / share goes up, price / fraction of company stays the same

That is obviously not true and he's pointing out why - if the market isn't very liquid, in this case not a lot of sales, price can jump nonlinearly.

[naveen99]

by this logic a reverse stock split would increase the market cap. No need to even waste money buying back any shares... free market cap rise, bonuses for ceo, cfo, existing shareholders rejoice :)

[rubber_duck]

What does reverse stock split have to do with it ? Buyback happens on the market and it removes stocks from circulation, if the demand is still there but buyback eliminated supply because people are holding on to the rest of the stock then the price automatically goes up and increases the market cap more - it's about liquidity - if you do a buyback of 1 billion suddenly there's 1 billion on the sell side that's gone but people still want to buy the stock - so the price goes up.

[gzu]

Your logic is flawed in that shares aren't simply "destroyed" they have to be bought back on the open market at an agreed upon price from a willing seller. The sellers of the shares may not want to sell and will therefore require more than the perfect price 𐤃X that accounts for adjustment of market cap based on reduction in shares.

In theory if no one wants to sell shares of Apple during a buyback the share price will head towards infinity. There's always a price though that someone will let go of a share at.