Prof G Markets: Alibaba and Mercado Libre, Share Buybacks vs. Dividends, and National Credit Ratings

Buybacks

Share buybacks have become a significant trend in the corporate world, with companies increasingly opting to repurchase their own shares instead of issuing dividends. Scott Galloway explains that this strategy can boost share prices by reducing the number of shares available on the market, thereby increasing earnings per share 1. However, this approach has its critics. Ed Elson argues that borrowing money to buy back shares can seem irresponsible and may not contribute to real economic growth 2.

It's aggressive. But you could make an argument if you feel your stock is deeply undervalued, you can access the debt markets at incredibly low interest rates.

--- Scott Galloway

Scott notes that while share buybacks can create short-term gains, they often do not lead to long-term investments in the company's growth 2.

   

Dividends

Comparing dividends and share buybacks, Scott highlights that dividends provide regular income to shareholders, which can be particularly appealing to older investors seeking steady cash flow 1. In contrast, share buybacks can offer tax advantages and potentially higher returns by increasing share prices without immediate tax implications 2.

It just feels like, okay, I'm going to turn on murder, she wrote, put some kaopectate on my hemorrhoids and collect my dividend checks. It just feels old.

--- Scott Galloway

Ed adds that the modern investment landscape, with zero-commission trading platforms, makes it easier for investors to sell shares and create their own 'synthetic dividends' 3.