This kind of stupidity is why I'm bearish on Apple. Companies should never prioritize financial engineering over R&D imo.
The company & shareholders will eat the disastrous consequences of this asinine thinking when the market next adjusts 30-60% and everyone realizes they were wasting money buying back stock at all time highs.
- R&D account for 7.9% for its revenue this part quarter.
- Apple is now on pace to spend $16 billion in R&D in 2019 as it preps for life after iPhone dominance.
https://www.imore.com/apple-spending-record-amount-research-...
All you need to understand is that they haven't. Assuming Apple is still a sound and rational company pursuing a similar line of business, that should speak volumes to you.
I’m bearish on Apple too.
[1] https://www.gov.uk/guidance/corporation-tax-research-and-dev...
The Airport Extreme disappearing is another disappointment.
https://blog.pinboard.in/2016/10/benjamin_button_reviews_the... (not replacing my 2013 MPro until they fix all the issues with the current generation that I'm forced to use at work)
Impressed by the design and functionality of the thing, really just plug and move on.
Whoever decided to discontinue Apple WiFi should be kicked
I have a feeling it's more to do with not wanting to help technologically illiterate individuals set up their own wifi, who blame "Apple" when their wifi doesn't work. But of course that's just speculation. The Airport lineup was bar-none the best easy-setup home router on the market when it was pulled.
“For the first time since 2013, iPhone sales did not account for at least half of Apple’s revenue”
i’d say that AAPL has been focusing on services more than anything else lately.
Why wouldn't you aquire debt?
This is the same reason rich people get a mortgage even if you could afford to buy the house outright.
Best part is that debt is defaultable.
Apple does buybacks for “compensation”.
In reality I think they have these motivations:
1) they think their yield is higher than the market.
2) their company is not an investment fund, but you still want your cash deployed.
3) Steve wanted to have nothing to do with investors anymore
https://www.bloomberg.com/opinion/articles/2019-06-24/would-...
Because there are large parts of the market who don't invest across the capital structure (ie they only buy debt or only buy equity), this can still lead to better allocation of capital.
The market isn't perfect but if companies are really mortgaging their future to provide shareholder returns today, that would seem to be something easily noticed when analyzing the company's financials... thus weighing on future profitability and acting as a counterforce to the boost from the buyback.
No need to be an accredited investor.
You can construct a trade that will make you money assuming your assumption is correct (that that company will underperform the market).
you could just be out of good ideas
(Side note: what does "sustainable" mean here? Usually that involves some kind of steady state, not growing indefinitely, which is always going to have limits.)
First, you'd hope they have profits, or they wouldn't be able to pay the bondholders? The question is, where do the company's future profits go?
I guess you could think of it as being a bit more like a bank? A bank provides a service to its depositors, holding their money and paying a little interest. A company does something similar for its bondholders, at higher risk than bank deposits but lower than stocks.
The company is for some reason deciding it wants to expand into the "provide a service to bondholders" business. It's a bit weird to talk about "providing bondholder value" but that's basically what they're doing, by staying in business, paying the interest, and rolling over the bonds. Stockholders get a one-time windfall when a company expands into this business, as the company for whatever reason doesn't actually need the cash.
It's a bit weird to borrow money from bondholders for this purpose, but you could think of it as doing things out of order. Instead of borrowing money to grow the business, they grow the business first, then borrow the money. Less risky that way!
You might also think of it this way: maybe some investors are looking for less risky investments. They would rather have bonds than stocks. Companies are responding to that.
Maybe we should be worried about companies being more bank-like? Life is uncertain. Why are they making guarantees they might not be able to keep? We've been this way before with banks chopping up mortgages to make "safe" investments.
One is that a new equilibrium will eventually be reached. At that point, buybacks will stop and it will hit EPS growth. I wonder if people are aware of what a huge chunk of EPS growth has been coming from buybacks in recent years. I fear the stock market may be in for a rude awakening when the buyback music stops.
The second issue is that debt has an expiry date whereas equity does not. Theoretically, the risk of not being able to roll over debt in a downturn should be reflected in the coupon a company has to pay on its debt.
We'll see whether corporate debt hasn't become too cheap already. We could once again be facing a situation where the effect of everyone having to do the same thing at the same time is not adequately priced in.
If that's the case, this can only end badly.
Sustainable means to stay in business. If you're not trying to fend off competition; if you're not trying to grow/expand; then you are waiting to die. Death =/= sustainable.
If a business doesn't have a sustainable business model, it should operate in a way that maximizes value to its shareholders as it goes through its end. Remember, preserving the corporation is not the goal; maximizing value to the shareholders is the goal.
https://www.litigationandtrial.com/2010/09/articles/series/s...
Imagine you invested money into some enterprise that promised you a share of the profits it will attempt to gain. If that enterprise never actually attempted to turn a profit, it would effectively be fraud.
Now let's imagine they do give you a share of the profits, but the enterprise spends most of its income on frivolous and unnecessary expenses and therefore the profits are very small, that would still effectively be fraud.
Therefore, the provision is to maximize value. It is the basic responsibility of anyone running a public company. Of course this is all fuzzy and you do have a lot of leeway in justifying expenses/investments, but the principle remains.
And this is where the law can step in. The shareholders can unite and take action. Or the gov can atep in. For example, the state of NY is going after Exxon Mobile for fraud, as related to EM's lack of disclosure over their role in climate change.
https://www.accountingtools.com/articles/2019/1/25/sharehold...
Preserving the the company is generally quite important in order to maximize value.
The "maximizing value" provision doesn't imply "in the short term", unless for some reason all the value is only in the short term.
If this wasn't the case, no company could ever invest in anything, because that lowers the short-term value.
Of course in practice the short term is often given preference, but that's not because of the provision.
Often it is, but not always. If the market for the company's product is going away it may make sense to just ride things down to the end, milking as much as they can as they die.
Monetizing other value in the company may also be possible, of course. The corporation could be purchased, or its parts could be sold in liquidation. The point is that survival of the corporation is not an end in itself, it's only relevant insofar as its maximizes shareholder value.
- Corporate tax vs. individual tax - Deferred tax assets - Sum-of-the-parts valuations - Internal project NPVs > NPV of investments available to an investor
Are you saying that a company should invest 100% back into itself? There are a few very successful companies that do that, but the vast majority do not. Most companies return value to shareholders regularly in the form of dividends (or buybacks).
The tax advantage of buybacks is they allow the shareholder to choose when the taxes are incurred, not how they’re taxed.
Not in Canada:
> Unlike many other countries, dividends from Canadian based companies are eligible for a somewhat convoluted set of calculations that can fondly be described as the dividend gross up and tax credit system. The basic rationale behind this system is that dividends are paid by corporations after the taxman has already taken his cut. Therefore, if dividend payments were fully taxed in the hands of the investor as well, it would equate to a double taxation.
* https://www.fool.ca/13-steps-to-financial-freedom/step-8-the...
* https://www.investopedia.com/terms/d/dividendtaxcredit.asp
It's slightly convoluted, but if you have investments in taxable accounts, then there's a bit of advantage in them than simply interest. Though capital gains in Canada is only taxed at half of one's marginal rate as well.
Berkshire Hathaway's cash position is evidence of exactly that. There's nothing good on sale right now. My own opinion of the state of the market is similar -- while I haven't been looking hard, I haven't found a solid value investment with a margin of safety in at least two years.
The first rule of investment/saving is to nuke your debts. Stocks are, effectively, debts. This makes complete sense to me. It's a conservative (the unpolitical kind) approach.
- you're only paying the interest and rolling over the debt; that only works with declining interest rates
- your income goes down for whatever reason and you can no longer make the debt payments
- you think "I'll just sell the stock" I accumulated, but that may not be possible if the stock price is declining.
If your income goes down, your stock price is probably also declining at the same time, but you still have those debt payments to make.
If, as a company, you feel that the thing you’ve been doing won’t be relevant in the future, you can either try to do new stuff, or give money back to shareholders so THEY can do new stuff.
I think the better question is: Under what condition(s) would not investing be a wise and sustainable business decision.
The first answer that comes to mind is: a monopoly. If you dominate your market you have little fear of competition over taking you. You don't need to invest.
The second answer that comes to mind: being a member of a cartel; where competition is feigned for appearances. Again, the need to invest is minimal as normal market forces have been subverted.