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PeakOil is You

PeakOil is You

Pumping Cash, Not Oil

General discussions of the systemic, societal and civilisational effects of depletion.

Re: Pumping Cash, Not Oil

Unread postby Outcast_Searcher » Sat 27 Jan 2018, 14:31:39

rockdoc123 wrote:
I predict more stock buy back programs and more dividends to maintain paper value. Unfortunately the paper manipulation management style seems to be pervasive in today's corporate America. Stock price is the main metric they use instead of actual physical output of any sort of product or service by their corporation.


Publicly traded companies are there to serve the shareholder. Decisions made keep this in mind and stock buybacks should be no different.

That is the theory and the way it should work. Unfortunately these days there are too many companies who use buybacks and the inherent inflated measures such as earnings per share to justify increased executive compensation. The solution to this to my mind is for shareholders to vote with their feet.

I think in the modern US market, the truth is somewhere in between.

First, some companies HAVE been using stock buybacks for a long time, as apparently they aren't coming up with more innovative ways to deploy massive amounts of cash. IBM and XOM are two huge well known corporations serving as examples.

The venerable Warren Buffett has opined on this at different times, most recently in the BRK 2016 shareholder letter. Basically, he says it's OK if corporations don't have anything better to do with their capital. (This OTOH bit is from memory, so I could be off:) OTOH, he has opined in the past that if he couldn't do better over time than to just pay dividends, people would be better off just investing in something like an S&P 500 fund. So it's not as though he's endorsing this as some sort of brilliant strategy -- he's just saying it's not irresponsible or malfeasance.

The pattern I've noticed is some permabears (i.e. investment newsletter "advisor" types), decry this as manipulation, and claim it will "blow up" companies. Bill Fleckenstein comes to mind as one example. But of course, the long term track record of such people is horrific (since the stock markets rise long term), so there's that.

To me, it's a sign of a company which is more or less an "old man" mostly treading water. Such companies aren't likely to show high long term growth anymore. Gas giants like Microsoft come to mind.

So what?

This is why I have both investments in S&P 500 indexes for safer growth over time and long term growth in dividends, and, say, small cap growth funds, which are much more volatile, more random re dividends, but have a significantly higher growth rate over the span of decades.

Any investing style has risks and rewards, which is why diversification is so important to anyone who is at all risk averse.
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.
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