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Strategies & Market Trends : Bob Brinker: Market Savant & Radio Host -- Ignore unavailable to you. Want to Upgrade?

To: Skeeter Bug who wrote (16445)	8/9/2002 12:19:37 PM
From: Don Lloyd	Read Replies (2) \| Respond to of 42834

SB, The argument your CEOs are making is irrelevant, as there is never a cash cost to the company. don, that simply isn't true. when a company back shares they gave as options as part of a plan to keep outstanding shares at a given level, they do so with CASH. that COSTS. real money, too. this costs companies BILLIONS. i agree there isn't necessarily a cost. i agree they are two different transactions. but they are related. make no mistake. You understand the point that one action doesn't require the other, so, to my mind, that cannot be considered a cost of the options. The buying back of shares is a problem in that it disguises the level of dilution that the the option grant compensation has caused. However, the actual buyback of shares at the market is a neutral economic event unless you profess to know whether the future stock price will be higher or lower. Whenever a company either buys or sells stock on the market at the market price, the funds it expends, or the sale proceeds it collects, both belong to the shareholders in direct proportion to the number of shares they hold. In both cases the decrease or the increase in the number of outstanding shares exactly compensates the shareholders for the funds they expend or the proceeds they receive indirectly through the company's change in asset value. Either the shareholders own a bigger angular slice of a smaller pie when shares are bought, or a smaller angular slice of a bigger pie when shares are sold. In both cases, they end up with the same amount of pie filling as before the purchase or sale. In the long term, the stock price trajectory determines the merit of the purchase or sale. Regards, Don