[colinsane]

> Everyone hates stock buybacks, but they’re economically very similar to dividends, and seem like a reasonable way for a fading company to return cash to shareholders.

consider the passive investor who just Buys and Holds. three alternate timelines:

1) company pays dividends for 5 years and goes bust with a balance sheet of zero.

2) company sells off its assets over 5 years and dissolves.

3) company does share buybacks for five years and goes bust.

in 1) and 2) the passive investor receives the same value as any other shareholder. in 3) the passive investor receives $0 and the value accrues exclusively to those shareholders who sold before the end.

the combination or buyback + predictable bankruptcy makes sense only if you’re a shareholder close to the company seeking to maximize your own distribution. putting “right” and “wrong” aside, this pattern should at least make you more wary of being a passive investor, generally.

[empath-nirvana]

Nobody owes passive investors money. It is an investment strategy that many people take, and like any strategy it can be exploited. If you buy stock and don't look at how the company you own is doing, then you deserve to lose your money. Nobody lied here. Everything was done right out in the open.

[colinsane]

in whichever branch of the multiverse has alternate me by some bizarre chance hosting you at a dinner party, remember to not take off your shoes. alternate me will meet you in your own ethical framework and confiscate them for himself when you're not paying attention.

[empath-nirvana]

If you include: "Oh, btw, if you take off your shoes, I'm keeping them" on the party invite, and follow up with quarterly updates that you're going to be taking everyone's shoes, it would be my own fault for going, wouldn't it?

[mactrey]

Most passive investors nowadays are investing in index funds. In that case all three of your investors receive equivalent return as the index rebalances away from the failing company.

[colinsane]

the impact is lessened, sure, but i shouldn't think the returns would be identical. the raiders try to sell their shares while the price is buoyed by the buyback program. the index funds wouldn't rebalance during that time because of that price buoy. at the point the buoy weakens, those index funds are stuck selling into the decline. a simplistic model with instant rebalancing and infinite liquidity would put their returns near half.