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Politics : High Tolerance Plasticity -- Ignore unavailable to you. Want to Upgrade?

To: stockman_scott who wrote (15061)	7/15/2002 11:58:28 AM
From: kodiak_bull	Read Replies (2) \| Respond to of 23153

Stockman Scott: Interesting article, confirming a lot of what I thought. I was surprised they didn't go into one metric I think is important and have never seen addressed, and that is what happens when equity is destroyed. For example, let's say we're measuring the return on stocks by looking at the S&P or the Naz or the Russell. Stocks come in and go out of these indices, and often stocks which go out (take ENE or WCOM) end up going to zero. However, for the statistician who simply looks at the S&P, rebalanced, year to year, he only records the data (and the damage) done while the stocks were included, and that doesn't take into account what happens when a stock falls and is replaced, and then explodes. Any "real" study of the equity markets would have to look at how much $$ was invested in stocks (vs. bonds, etc.) and how much "yield" in terms of dividends, gains and losses was received. Then, since you're comparing this beast to other investments, such as tax-free investments, you'd want to factor in the tax cost of investing, harvesting, reinvesting and disinvesting in (or getting disinvested from) equities. These studies going back a hundred years or more are always entertaining but it's also interesting to look at some of the companies that used to dominate indices and no longer even exist, or to think of entire sectors (the original Berkshire Hathaway and New England's textile mfg business) which are de facto non-existent. Here's the best paragraph from the article: "What about the argument that share repurchases have replaced dividend checks as a way of distributing corporate cash? Stock-buyback programs were much in vogue in the 1990s, but Arnott says that those programs, for the most part, merely bought back shares that were issued to executives through options." So, it's very clear: companies dilute their shareholders to issue options to their "managers," who then use the corporate treasury to buy back shares (read: manipulate, er, support the market) which are basically slush fund payments to corporate executives. Afterwards, when the market (or market segment) cracks and crashes, the executives simply wring their hands, blame "Wall Street" or the Fed or hard times, then go back to picking out tile for their $18 million home in Boca Raton. Kb