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Strategies & Market Trends : Bob Brinker: Market Savant & Radio Host
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To: Skeeter Bug who wrote (16455)8/11/2002 12:59:08 PM
From: Math Junkie  Read Replies (1) of 42834
 
It sounds like you want to expense stock buy-backs.

You wrote, "options REQUIRE a company to buy back shares to keep dilution at bay. "

I just want to point out that keeping dilution at bay is not required, it's optional.

Secondly, when you talk about the opportunity costs from not having the buy-back funds available to build the company, you're assuming that using the cash for that purpose would have been effective in building the business. But companies have a tendency to time the buy-backs when stock prices and business are weak, so that assumption may not be valid.

You could also use the opportunity cost argument against dividends. A stock buy-back has a similar effect to paying a dividend, because if for example a company buys back 1% of its stock, the remaining stock is 1% more valuable than it would have been. For a shareholder, a buy-back is even better than a dividend, because it gives the shareholder the opportunity to defer the tax impact until later (by continuing to hold all his shares), and the opportunity to have it taxed at capital gains rates instead of as ordinary income.

The whole point of this discussion is to benefit the shareholders, is it not?
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