eli5: what are stock buybacks, why are they generally considered a bad thing (for most of us), and what’s the rationale for having it?

Question

eli5: what are stock buybacks, why are they generally considered a bad thing (for most of us), and what’s the rationale for having it?

In: 63

Answer 1

Shares represent ownership.

If you own 1 share of a company that has 1000 outstanding shares, you own 0.1% of the company.

When the company buys back 100 shares and you choose not to sell to them, there are now only 900 shares in circulation and your ownership would then be 0.11%. As you now own a larger piece of the pie, you’re entitled to more dividends, voting right, and everything that comes with ownership. Your 1 share is now more valuable and can fetch higher peice.

There is nothing bad about stock buyback by itself. However, spending money on stock repurchase meaning the company won’t reinvest and expand the business. Certain politicians hate this because the company might be producing essential goods (despite their claim to the contrary). For example, oil companies are distributing dividend and do buyback instead of drilling for new rigs, which causes shortage (old wells are depleting but no new well is built) and prices of everything to increase.