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by overrun11 242 days ago
This is just nonsense. Anyone can sell the stock if they wish, there is no privilege for the high-net worth. Additionally, shareholders benefit from reduced share count because it increases their claim on future profits thereby increasing compounding.
1 comments
triceratops 242 days ago
You're mixing up points 2 and 3. Anyone can sell, but buybacks benefit mostly sellers.

Borrowing against stock is mostly something for HNW people.

> shareeholders benefit from reduced share count because it increases their claim on future profits

So...dividends? Or when they eventually sell? What if I never want to sell?

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overrun11 241 days ago
Buybacks are still better if you want to hold forever and don't care about share price. With a dividend distribution you must pay taxes and reinvest the diminished proceeds. You end up with a smaller share of the company than in the buyback scenario. Example:

A: Hold $10 of stock. Buyback of 1$ per share. You're left with $10 of stock. B: Hold $10 of stock. Dividend of 1$ per share. You're left with 9$ of stock and $1 cash - taxes payed. Once reinvested you have $9 + (1 * tax rate) in stock.

You're making two mistakes: One is thinking that dividends are magic money that do not cause share prices to fall in exact accordance with the distribution and the other is that buybacks lift the share price somehow (they do not, see Modigliani-Miller).

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barchar 241 days ago
Actually, normal people can do the borrowing thing. It's not really as necessary since you have normal employment income but you can do it and it can work. If you continually add more principle to your pile-o-stock than your monthly spending the growth will outpace your interest and you won't accumulate an unbounded amount of leverage.

At least if your broker offers decent margin rates or you sell boxes.

Well, also, your 401k and IRAs are probably superior to this strategy and can't be used as collateral as they're protected in bankruptcy. So it's not worth it until you fill those up.

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triceratops 241 days ago
> Actually, normal people can do the borrowing thing

But it's way riskier.

> At least if your broker offers decent margin rates

I guarantee you no retail broker will give you the rates Elon's broker gives him.

> you sell boxes

I have to guess you mean "box spreads". This is an advanced strategy and again more likely used by HNW people.

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