> The value is only from what other people are willing to pay for it?

Somehow every time I try to make this argument about stock buybacks, some people vigorously defend them as not just somehow a glorified Ponzi scheme.

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nostrademons 2 hours ago | parent | next [-]

Why would you see them as a Ponzi scheme?

The cash for buybacks comes from company operations, which they give to investors in exchange for destroying the outstanding security. The cash for Ponzi schemes comes from other investors, which they receive in exchange for issuing more securities and use to fund investors who want to cash out. They are in many ways opposites.

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throw-qqqqq 2 hours ago | parent | prev [-]

The value of stock buybacks come from lowering shares in circulation. Fewer shares means that shareholders have to share profits with fewer, leading to larger profits or dividends per share.

How do you see that as a Ponzi scheme?

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saghm 2 hours ago | parent [-]

I see it as a Ponzi scheme when people argue that they're a replacement for dividends. You're describing them as if dividends are an assumption, in which case they're perfectly reasonable.

	▲	throw-qqqqq 2 hours ago \| parent \| next [-]
		Even for companies that do not pay dividends, buybacks should increase the value of each share, because you share profits with fewer other shareholders. Buybacks raise the EPS/earning-per-share by lowering the denominator (number of outstanding shares). EDIT: If P/E stays the same, but the E (earnings) grows, the P (price) has to grow too. I think it’s quite uncontroversial to equate buybacks with dividends. Personally, I prefer dividends, even if they’re suboptimal tax-wise.
	▲	wat10000 an hour ago \| parent \| prev \| next [-]
		I don't think buybacks are really the thing here. The question is why a stock would have value if it doesn't pay dividends. If there's a good reason for that then buybacks are perfectly sensible. If there isn't then such companies are engaged in some sort of weird scheme regardless of buybacks.
	▲	neutronicus 2 hours ago \| parent \| prev [-]
		They're currently a replacement for dividends because dividends are less tax-efficient than stock buybacks. I struggle with the same initial impression as you, and have reached an uneasy peace with the status quo by telling myself that the stock price is about the amount of dividends the company could issue in a dividend-friendlier tax environment, once its growth plateaus and it goes into cash-cow mode.