But following the line of thought, where growth is being seeked for the sake of investors, denying that growth, would make the prices fall making it cheaper to buy them back. If a company stops trying to grow after it has found success, established itself and makes a good or even extremely high profit, wouldn’t it be best to just stop growing and let investors seek other companies that seek to grow?
Sure but investors have a say in how the company manages its finances so they won’t vote in favor of crashing the share price so the company can buy them back for cheap!
In a better market investors would expect their profit from well established companies to come from dividends and the share price would be fairly stable so investors looking for high profits would sell shares from established companies with stable dividends to people who want safe investments and would move on to growing companies where they could potentially make profit from the share price increasing rapidly until the company reaches a point where it’s stable…
That exists, plenty of huge companies that pay good dividends with share prices that are moving at snail pace (look at the share price of IBM vs Apple for the last 25 years or so), but these days that’s not what investors want, they expect profit from the line going up and selling their shares 🤷
Even then, just like you expect a pay increase to follow inflation, people expect their profit from a company to go up with time, may it be from the price going up or from dividends increasing…
Companies do not generally go public and start offering shares just for the fun of it. They need that influx of money from the initial offering for one reason or another. A company’s overall margin is also generally not very large, especially compared to its market cap, which is what would need to be bought back. Amazon’s profit of ~10 billion is trivial in comparison to their market cap of 1.5 trillion. Even their total annual revenue is still only about a tenth of that. They’d need to shrink by at least an order of magnitude for a buyback to even be possible, let alone plausible.
TL;DR: It is extraordinarily rare for a publicly traded company to have the cash flow necessary to consider buying itself back.
The fiduciary responsibility is a little misunderstood. The CEO can’t intentionally run the business into the ground but can do things like post short term losses in order to reinvest in development or restructuring, they can be honest when paying their taxes and so forth. The law doesn’t require CEOs to be total sociopaths, they do that part all on their own.
But following the line of thought, where growth is being seeked for the sake of investors, denying that growth, would make the prices fall making it cheaper to buy them back. If a company stops trying to grow after it has found success, established itself and makes a good or even extremely high profit, wouldn’t it be best to just stop growing and let investors seek other companies that seek to grow?
Sure but investors have a say in how the company manages its finances so they won’t vote in favor of crashing the share price so the company can buy them back for cheap!
In a better market investors would expect their profit from well established companies to come from dividends and the share price would be fairly stable so investors looking for high profits would sell shares from established companies with stable dividends to people who want safe investments and would move on to growing companies where they could potentially make profit from the share price increasing rapidly until the company reaches a point where it’s stable…
That exists, plenty of huge companies that pay good dividends with share prices that are moving at snail pace (look at the share price of IBM vs Apple for the last 25 years or so), but these days that’s not what investors want, they expect profit from the line going up and selling their shares 🤷
Even then, just like you expect a pay increase to follow inflation, people expect their profit from a company to go up with time, may it be from the price going up or from dividends increasing…
Companies do not generally go public and start offering shares just for the fun of it. They need that influx of money from the initial offering for one reason or another. A company’s overall margin is also generally not very large, especially compared to its market cap, which is what would need to be bought back. Amazon’s profit of ~10 billion is trivial in comparison to their market cap of 1.5 trillion. Even their total annual revenue is still only about a tenth of that. They’d need to shrink by at least an order of magnitude for a buyback to even be possible, let alone plausible.
TL;DR: It is extraordinarily rare for a publicly traded company to have the cash flow necessary to consider buying itself back.
IIRC, in the US, a CEO’s job is maximising shareholder value, and failing to do so is malpractice.
When you put it like that, it almost sounds like a scam
The fiduciary responsibility is a little misunderstood. The CEO can’t intentionally run the business into the ground but can do things like post short term losses in order to reinvest in development or restructuring, they can be honest when paying their taxes and so forth. The law doesn’t require CEOs to be total sociopaths, they do that part all on their own.